Earnings Call Transcript - KVHI Q3 2021

Operator, Operator

Good day, and 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 Kuebel. Please go ahead.

Roger Kuebel, COO

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 Bruun; and CEO, Martin Kits van Heyningen. 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're listening via the web, feel free to submit questions to ir@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 3 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.

Martin Kits van Heyningen, CEO

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 million 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 outpaced 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 1 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 TracPhone V30 in both 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 AgilePlans, our Connectivity as a Service program for the commercial maritime sector, was up more than 54% compared to the third quarter of 2020. AgilePlan 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 long-standing 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 the total cost savings of around $12 million next year and a net savings of roughly $5 million to $6 million in annual airtime expenses depending on how many customers move over. For those customers moving to HTS, we will be adding bandwidth to the HTS network. We've always assumed that not all ArcLight subscribers would migrate exactly by year-end. And we expect that by January 1, 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 manufacturers' 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 recognized 3 of our products, our TracVision UHD 7, our new TracPhone V3 and our TracPhone 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 TracVision satellite TV systems, 19 years in a row for our TracPhone satellite communication systems and the third consecutive year for a 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 2 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 continued to build our position within leading commercial fleets around the world, Briese Schiffahrt in Germany, recently signed AgilePlans 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. Nomikos, is rolling out AgilePlans 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 Asia Pac. And finally, on the commercial front, it was great to see content revenue up versus Q3 last year as our cruise ship customer 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 Net Feasa has joined as a watch solution partner. Net Feasa's focus is container tracking, an application of particular value right now as container rates are soaring and the shipping industry seeks to streamline the global supply and logistical challenges. KVH 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 for real-time IoT applications and remote expert intervention, which connects experts onshore to engineers on board 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 visualization. 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 or just view reports, monitoring, reporting and verification reports to check their compliance with Energy Efficiency Ship index, for example. The equipment manufacturers like engine manufacturers can monitor their onboard equipment to support service contracts and warranties. And multi-card 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. KVH'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 and 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 30. 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. Now 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 $0.5 million or 6% in the third quarter compared to Q3 of last year. The demand for fiber 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 are working with in the autonomous trucking space in the coming months. Our success in the 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 Escribano 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 future priorities, including 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 midrange 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 Kuebel, COO

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 2 percentage points. Revenue from our Inertial Navigation segment decreased $1.1 million year-over-year with the gross margin decreasing 5 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 TracPhone 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 Navigation 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 the 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 the 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 nonrecurring costs such as unusual nonoperating 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 our 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 5 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 million to $21 million, the majority of which is driven by AgilePlan 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, we noted 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, Operator

Our first question comes from Rick Prentiss with Raymond James.

Rick Prentiss, Analyst

A couple of 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 set, so not just the guidance that Roger gave. But at the end of the remarks, Martin, what were you referencing as far as revenue and adjusted EBITDA?

Martin Kits van Heyningen, CEO

We had given some sort of midterm guidance or outlook back in June and which was double-digit revenue growth and mid-teens EBITDA margins, adjusted EBITDA margins. So that's 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.

Roger Kuebel, COO

Just let me clarify, those are sort of midterm targets, that's not intended to be guidance for next year.

Martin Kits van Heyningen, CEO

Yes, for this quarter, that's something we have previously mentioned in a presentation.

Rick Prentiss, Analyst

I just want to clarify that midterm means over the next several years, not like a 10-year plan, but something that's not a...

Martin Kits van Heyningen, CEO

Yes. Long term would be 3 to 5 years, midterm would be 2 to 3 years.

Rick Prentiss, Analyst

Then also some interesting and exciting news on the autonomous trucking and autonomous vehicle areas in general. What can you share 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 scale up to hit those numbers?

Martin Kits van Heyningen, CEO

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 2, we feel very comfortable that we'll be able to keep pace with our production for that. And as I pointed out, this is not something that is 3 to 5 years away. We expect starting now early next year, 20% of our FOG revenues will be coming from autonomous vehicle platforms.

Rick Prentiss, Analyst

And we've been hearing from some of the logistics transportation companies about something called teleops, where it's kind of like small drone-like vehicles that are maybe remotely controlled. Have you made some progress into that as well? What can you share us on that kind of submarket?

Martin Kits van Heyningen, CEO

No, I can't say that we have. So most of our customers are autonomous. But sometimes autonomy means that there's a lead vehicle and then there are 3 or 4 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 teleoperated per se, but not the ones that we're on.

Rick Prentiss, Analyst

And then we also noted cost of service came in a little lighter than we were looking for, obviously, being 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?

Martin Kits van Heyningen, CEO

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

Rick Prentiss, Analyst

Yes, I think it was a little lighter than we thought. I mean we had a content report this morning. So we're still a bit of a blur.

Martin Kits van Heyningen, CEO

Our overall margin was somewhat better than anticipated and in line with last quarter. We have been increasing our capacity as we grow our subscriber base on the HTS network. It's important to note that while we reported a net subscriber growth of 12% and a 13% rise in airtime revenue, this doesn't fully capture the additional capacity being brought to the HTS network as customers transition off. Approximately 90% of our revenue is now generated from the HTS network, which is significantly contributing to our cost savings for the upcoming year. By January, we expect to realize an immediate cost reduction of over $10 million, leading to an annual cost decrease of around $12 million. Currently, we've already absorbed a substantial portion of the increases associated with the HTS network. In summary, this migration is progressing well. Provided we avoid leaving too many customers behind in January, this should yield significant benefits for us next year, allowing for improved margins.

Operator, Operator

Our next question comes from Chris Quilty with Quilty Analytics.

Chris Quilty, Analyst

I wanted to follow up on the autonomous vehicle. If you're targeting 20% next year, how does that compare to this year or in recent years in terms of contribution?

Martin Kits van Heyningen, CEO

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

Chris Quilty, Analyst

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 volume?

Martin Kits van Heyningen, CEO

Yes, 100% of everything we ship next year is PIC-based. So the answer is yes. So it will be our new photonic chip-based products and they're primarily IMUs as opposed to a single sensor. So that's another difference from what we've seen in automotive is that for these trucking-type applications, they're looking for a 3-axis IMU, not just a single-axe yacht sensor.

Chris Quilty, Analyst

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

Martin Kits van Heyningen, CEO

Well, the short answer is no. We're not at the point of dropping prices into the hundreds of dollars yet, which would require significant volume, as you mentioned. We'll adjust the price as self-driving trucking becomes more established. However, from a competitive standpoint, there's no necessity for us to be significantly cheaper than we currently are. Therefore, we plan to maintain our margins next year as we continue to grow in this market with our customers.

Chris Quilty, Analyst

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?

Martin Kits van Heyningen, CEO

It's somewhat ironic. We have taken steps to build units quickly, including the development of the photonic chip and the addition of optical automated assembly equipment, which has not faced production issues. However, our main challenge now is acquiring chips. When we eventually receive the chips, they arrive late in the quarter, complicating our ability to build and manage work in process on the floor. This creates a highly inefficient manufacturing process, especially in our Chicago facility, but it also affects our Middletown location. Even when we receive the parts, they are often not properly sequenced. This disruption to manufacturing is significant and impacts our ability to deliver products effectively. However, from the perspective of optical components, we are well-positioned for large-scale production.

Chris Quilty, Analyst

Question on the TACNAV order you said you expect in Q4. Is that the sort of 7-digit or is that an 8-digit type of order in terms of scale?

Martin Kits van Heyningen, CEO

It's a big one.

Roger Kuebel, COO

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 in 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.

Martin Kits van Heyningen, CEO

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

Chris Quilty, Analyst

And this is one of the well-known programs that you've been working on for the past couple of years, prototyping and testing?

Martin Kits van Heyningen, CEO

So it's a repeat customer.

Chris Quilty, Analyst

And switching over to the mobile connectivity side, 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?

Martin Kits van Heyningen, CEO

Well, it's primarily due to the hardware costs, and it's uncertain if this will be a lasting change. For instance, to maintain production, we've started purchasing chips from scalpers, which means paying ten times the usual price just to avoid shutting down and being unable to ship a $20,000 antenna. This means paying $100 for a $10 part, for example. As a result, our cost of goods sold has definitely increased. Moving forward, we will need to pass these costs onto our customers to ensure we can maintain delivery. Our customers prefer receiving the product rather than waiting six months, which is the lead time for some of these chips.

Roger Kuebel, COO

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

Chris Quilty, Analyst

So I should have been stocking up on chips when I was stocking up on toilet paper?

Roger Kuebel, COO

Yes, everybody had the wrong priorities.

Chris Quilty, Analyst

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

Brent Bruun, COO

There may be some costs, Chris, but it won't be overly material. We're talking $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 and upgrading their existing equipment and giving them deals on hardware.

Chris Quilty, Analyst

And final question, just in terms of CapEx. 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 AgilePlan related CapEx or KVH Watch, related CapEx expenditures? Do we stay in the same sort of levels as 2021? Or do you expect a step up?

Roger Kuebel, COO

We're not ready to discuss next year yet. It's a relative situation. As we continue to increase subscribers on the AgilePlans, we're investing in good capital expenditures that are all revenue generating. You can think of the capital expenditures as proportional to the growth of Agile revenue. However, we are not prepared to provide any specific details about next year at this time.

Martin Kits van Heyningen, CEO

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

Operator, Operator

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

Roger Kuebel, COO

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.

Martin Kits van Heyningen, CEO

Thanks, everyone.

Brent Bruun, COO

Thank you.

Operator, Operator

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