RigNet Announces Third Quarter 2020 Earnings Results

HOUSTON, Nov. 5, 2020 /PRNewswire/ -- RigNet, Inc. (NASDAQ: RNET, the "Company"), a leading provider of ultra-secure, intelligent networking solutions and specialized applications, announced its results for the quarter ended September 30, 2020.

  • Third quarter 2020 revenue of $48.7 million, net loss of $5.5 million or $0.25 per share
  • Revenue decreased by 8.7% to $48.7 million compared to prior quarter
  • Adjusted EBITDA decreased by 22.3% to $7.5 million compared to prior quarter
  • Managed Communications Services (MCS) Sites served decreased 3.2% to 1,190 compared to the prior quarter
  • System Integration project backlog of $12.4 million

"RigNet's gross margin grew in the third quarter even as our customers continued to battle the impact of reduced commodity demand due to COVID-19," said Steven Pickett, Chief Executive Officer and President. "We continue to see robust interest in our solutions across our segments and delivered some needle-moving wins in our core MCS business that will begin to add revenue late this year and reach full contribution in the second quarter of 2021. Our strategy of moving "up the stack" is paying off and our ongoing investment in Apps & IoT has differentiated RigNet from our competitors, enabling us to increase market share both in offshore drilling rigs and Floating Production, Storage, and Offtake vessels. We continue to show operational discipline by maintaining tight controls over both operating and back-office costs, as well as capital spending."

Quarterly revenue was $48.7 million, a decrease of $4.7 million, or 8.7%, compared to $53.4 million in the prior quarter and a decrease of $12.3 million, or 20.1%, compared to $61.0 million in the third quarter 2019. Compared to the second quarter 2020, Managed Communications Services (MCS) revenue decreased by $2.2 million, or 6.4%, due to a decrease in site count and new site delays compared to prior quarter. Apps & IoT revenue decreased by $0.4 million, or 5.0%, primarily due to lower bandwidth usage in IoT. Systems Integration (SI) revenue decreased by $2.0 million, or 19.5%, primarily due to the timing of projects. Compared to the third quarter of 2019, MCS revenue decreased by $10.1 million compared to third quarter 2019 due to decreased site counts including rig stacking, and lower equipment sales. Apps & IoT revenue decreased by $0.9 million, or 9.7%, primarily due to lower equipment sales and bandwidth usage in IoT. SI revenue decreased by $1.3 million or 13.0%, compared to the third quarter of 2019 primarily due to differences in the timing on certain projects. 

Net loss attributable to common stockholders in the third quarter of 2020 was $5.5 million, or $0.25 per share, compared to net loss attributable to common stockholders of $4.3 million, or $0.21 per share, in the second quarter of 2020 and net loss attributable to common stockholders of $0.5 million, or $0.02 per share, in the third quarter of 2019. The net loss in the third quarter of 2020 included a one-time, non-cash impairment charge on certain intangible assets of $3.8 million. Excluding this charge, net loss in the third quarter of 2020 was $1.7 million or $0.08 per share.

Adjusted EBITDA, a non-GAAP measure defined and reconciled to GAAP net loss (as described below), was $7.5 million, a decrease of 22.3% compared to $9.7 million in the second quarter of 2020 and a decrease of 31.6% compared to $11.0 million  in the third quarter of 2019.

Capital expenditures for the three months ending September 30, 2020 totaled $2.0 million compared to $3.1 million for the three months ending June 30, 2020 and $5.9 million for the quarter ending September 30, 2019. Capital expenditures for the nine months ending September 30, 2020 totaled $8.8 million compared to $17.5 million for the nine months ending September 30, 2019. After accounting for accrued capital expenditures, capital expenditures on a cash basis were $2.1 million and $3.3 million in the quarters ended September 30, 2020 and June 30, 2020, respectively. Capital expenditures on cash basis was $10.7 million for the nine months ended September 30, 2020.

Contracting and Operational Update

In October 2020, RigNet announced it has been awarded a multi-year contract with another premier offshore drilling contractors to provide fully managed communications services and global satellite access to its entire global drilling fleet. The new contract expands the already existing services which include RigNet's machine learning platform, Intelie, and other over the top applications, intelligence, and network security solutions that enable the digital transformation of business operations across the energy value chain, including in some of the harshest offshore environments imaginable.

Also, in October 2020, RigNet secured a multi-year contract to significantly expand existing MCS services with a premier operator of Floating Production, Storage, and Offtake (FPSO) vessels whereby RigNet will provide a fully managed end-to-end architecture of satellite and terrestrial networks.

MCS Site count in the third quarter 2020 decreased by 3.2% to 1,190 compared to 1,229 in the second quarter 2020 and decreased by 14.1% compared to 1,386 in the third quarter 2019.

Project backlog (using costs to costs accounting, formerly known as percentage of completion accounting) was $12.4 million in the third quarter 2020 and $15.9 million in the second quarter 2020 and was $35.9 million in the third quarter 2019.

Additional Detail

In the third quarter 2020, the Company recorded a non-cash intangible assets impairment charge of  $3.8 million as a result of the carrying amounts on certain intangible assets which were in excess of their recoverable value. Additionally, the Company recorded $0.1 million in one-time costs directly related to COVID-19 pandemic, such as costs associated with cleaning, testing, quarantine of employees, and modifications to our Gulf of Mexico microwave network, and $0.1 million in merger and acquisition costs. As of September 30, 2020, the Consolidated Leverage Ratio was 2.97 and Consolidated Fixed Charge Coverage Ratio was 2.13. In the second quarter 2020, the Company recorded  $3.9 million increase in the fair value of earn-out/contingent consideration related to Intelie, $0.7 million in one-time costs directly related to COVID-19 pandemic, such as costs associated with cleaning, testing, quarantine of employees, and modifications to our Gulf of Mexico microwave network, $0.3 million in executive departure costs, and $0.1 million in merger and acquisition costs.  In the quarter ended September 30, 2019, the Company recorded $0.2 million in restructuring costs associated with consolidating three legacy facilities into our new Lafayette Louisiana office and a credit of $0.4 million in GX dispute Phase II costs.

Earnings Call Information

An Earnings Call for investors will be held at 11:00 a.m. Eastern Time (10:00 a.m. Central Time) on Friday, November 6, 2020, to discuss RigNet's third quarter 2020 results. The call may be accessed live over the telephone by dialing +1 (877) 870-4263, or, for international callers, +1 (412) 317-0790. Interested parties may also listen to a simultaneous webcast of the conference call by logging onto RigNet's website at www.rig.net in the Investors – Webcasts and Presentations section.  A replay of the conference call webcast will also be available on our website for approximately thirty days following the call.

About RigNet

RigNet (NASDAQ: RNET) delivers advanced software and communications infrastructure that allow our customers to realize the business benefits of digital transformation. With world-class, ultra-secure solutions spanning global IP connectivity, bandwidth-optimized OTT applications, IIoT big data enablement, and industry-leading machine learning analytics, RigNet supports the full evolution of digital enablement, empowering businesses to respond faster to high priority issues, mitigate the risk of operational disruption, and maximize their overall financial performance. RigNet is headquartered in Houston, Texas with operations around the world.  

For more information on RigNet, please visit www.rig.net. RigNet is a registered trademark of RigNet, Inc.

Forward Looking Statements

This press release includes "forward-looking statements" within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995 – that is, statements related to future, not past, events. Opinions, expectations with respect to conditions in the oil and gas industry, customer perceptions of value, entry into new customer contracts, growth prospects, and the one-time nature charges are examples of forward-looking statements in this press release. Forward-looking statements are based on current expectations and include any statement that does not directly relate to a current or historical fact.  In this context, forward-looking statements often address our expected future business and financial performance, including the expected benefits of acquiring and integrating other businesses, and often contain words such as "anticipate," "believe," "intend," "will," "expect," "plan" or other similar words. These forward-looking statements involve certain risks and uncertainties, including those risks set forth in Item 1A – Risk Factors of the Company's most recent 10-K filing, and Item 1A- Risk Factors of the Company's 10-Q filing for the quarter ended March 31, 2020, filed with the SEC on Monday, May 11, 2020, and ultimately may not prove to be accurate. Actual results and future events could differ materially from those anticipated in such statements. For further discussion of risks and uncertainties, individuals should refer to RigNet's SEC filings. RigNet undertakes no obligation and does not intend to update these forward-looking statements to reflect events or circumstances occurring after this press release.  You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. All forward-looking statements are qualified in their entirety by this cautionary statement.

Non-GAAP Financial Measure

This press release contains the non-GAAP measure Adjusted EBITDA, a measure we believe is useful to investors as a supplemental measure to evaluate overall operating performance and is an integral component of financial covenant ratios in our credit agreement. Adjusted EBITDA is a financial measure that is not calculated in accordance with generally accepted accounting principles, or GAAP. We refer you to the Company's Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on Wednesday, March 11th, 2020, for a more detailed discussion of the uses and limitations of Adjusted EBITDA.

We define Adjusted EBITDA as net loss plus interest expense; income tax expense (benefit); depreciation and amortization; impairment of goodwill, intangibles, property, plant and equipment; (gain) loss on sales of property, plant and equipment, net of retirements; change in fair value of earn-outs and contingent consideration; stock-based compensation; mergers and acquisitions costs; executive departure costs; restructuring charges; the GX dispute; the GX dispute Phase II costs, one-time costs directly related to COVID-19 pandemic one-time costs directly related to COVID-19 pandemic, such as costs associated with cleaning, testing, quarantine of employees, and modifications to our Gulf of Mexico microwave network, and non-recurring items

A reconciliation of net loss to Adjusted EBITDA is found in the table below.

RIGNET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

 
   

Three Months Ended

   

Nine Months Ended

 
   

September
30,

2020

   

June 30,

2020

   

September
30,

2019

   

September
30,

2020

   

September
30,

2019

 
   

(in thousands, except per share amounts)

 

Unaudited Consolidated Statements of

                                       

Comprehensive Loss Data:

                                       

Revenue

 

$

48,722

   

$

53,391

   

$

60,993

   

$

160,874

   

$

178,835

 

Expenses:

                                       

   Cost of revenue (excluding depreciation and amortization)

   

29,995

     

33,687

     

35,662

     

101,632

     

108,637

 

   Depreciation and amortization

   

6,375

     

6,913

     

7,172

     

20,219

     

23,763

 

   Impairment of goodwill and intangible assets

   

3,836

     

-

     

-

     

26,977

     

-

 

   Change in fair value of earn-out/contingent consideration

   

-

     

3,916

     

-

     

3,916

     

1,284

 

   Selling and marketing

   

2,262

     

2,207

     

2,784

     

7,281

     

9,529

 

   General and administrative

   

9,295

     

9,453

     

12,377

     

32,577

     

43,305

 

Total expenses

   

51,763

     

56,176

     

57,995

     

192,602

     

186,518

 

Operating income (loss)

   

(3,041)

     

(2,785)

     

2,998

     

(31,728)

     

(7,683)

 

Other expense, net

   

(1,731)

     

(1,338)

     

(2,270)

     

(4,918)

     

(4,798)

 

Income (loss) before income taxes

   

(4,772)

     

(4,123)

     

728

     

(36,646)

     

(12,481)

 

Income tax (expense) benefit

   

(695)

     

(129)

     

(998)

     

156

     

(5,868)

 

Net loss

 

$

(5,467)

   

$

(4,252)

   

$

(270)

   

$

(36,490)

   

$

(18,349)

 
                                         

Net Loss Per Share - Basic and Diluted

                                       

Net loss attributable to RigNet, Inc.

     common stockholders

 

$

(5,537)

   

$

(4,322)

   

$

(494)

   

$

(36,700)

   

$

(18,633)

 

Net loss per share attributable to

     RigNet, Inc. common stockholders, basic

 

$

(0.25)

   

$

(0.21)

   

$

(0.02)

   

$

(1.69)

   

$

(0.94)

 

Net loss per share attributable to

     RigNet, Inc. common stockholders, diluted

 

$

(0.25)

   

$

(0.21)

   

$

(0.02)

   

$

(1.69)

   

$

(0.94)

 

Weighted average shares outstanding, basic

   

22,573

     

20,510

     

19,970

     

21,776

     

19,777

 

Weighted average shares outstanding, diluted

   

22,573

     

20,510

     

19,970

     

21,776

     

19,777

 
                                         

Unaudited Non-GAAP Data:

                                       

Adjusted EBITDA

 

$

7,536

   

$

9,701

   

$

11,010

   

$

25,588

   

$

29,171

 

 

RIGNET, INC.

Reconciliation of Net Loss to Adjusted EBITDA

(Unaudited)

 
   

Three Months Ended

   

Nine Months Ended

 
   

September
30,

2020

   

June 30,

2020

   

September
30,

2019

   

September
30,

2020

   

September
30,

2019

 
   

(in thousands)

 

Reconciliation of Net Loss to Adjusted EBITDA:

                                       

Net loss

 

$

(5,467)

   

$

(4,252)

   

$

(270)

   

$

(36,490)

   

$

(18,349)

 

Interest expense

   

1,315

     

1,325

     

1,784

     

4,168

     

4,291

 

Depreciation and amortization

   

6,375

     

6,913

     

7,172

     

20,219

     

23,763

 

Impairment of goodwill and intangible assets

   

3,836

     

-

     

-

     

26,977

     

-

 

(Gain) loss on sales of property, plant and equipment, net of retirements

   

79

     

(166)

     

8

     

195

     

19

 

Stock-based compensation

   

502

     

832

     

1,504

     

5,188

     

7,132

 

Restructuring costs

   

-

     

-

     

158

     

-

     

731

 

Change in fair value of earn-out/contingent

   consideration

   

-

     

3,916

     

-

     

3,916

     

1,284

 

Executive departure costs

   

-

     

255

     

-

     

553

     

-

 

Mergers and Acquisitions costs

   

67

     

78

     

76

     

213

     

486

 

COVID-19 Costs

   

134

     

671

     

-

     

805

     

-

 

GX Dispute Phase II costs

   

-

     

-

     

(420)

     

-

     

3,946

 

Income tax expense (benefit)

   

695

     

129

     

998

     

(156)

     

5,868

 

Adjusted EBITDA (non-GAAP measure)

 

$

7,536

   

$

9,701

   

$

11,010

   

$

25,588

   

$

29,171

 

 

RIGNET, INC.

Segment Information

(Unaudited)

 
   

Three Months Ended

   

Nine Months Ended

 
   

September
30,

2020

   

June 30,

2020

   

September
30,

2019

   

September
30,

2020

   

September
30,

2019

 
   

(in thousands)

 

Managed Communications Services

                                       

Revenue

 

$

31,939

   

$

34,136

   

$

42,055

   

$

105,971

   

$

125,593

 

Cost of revenue

   

19,523

     

22,985

     

24,156

     

68,010

     

76,160

 

Depreciation and amortization

   

4,510

     

4,843

     

5,037

     

14,012

     

16,360

 

Impairment of goodwill

   

-

     

-

     

-

     

21,755

     

-

 

Selling, general and administrative

   

2,454

     

2,436

     

3,303

     

7,697

     

10,446

 

Operating income (loss)

 

$

5,452

   

$

3,872

   

$

9,559

   

$

(5,503)

   

$

22,627

 
                                         

Applications and Internet-of-Things

                                       

Revenue

 

$

8,367

   

$

8,805

   

$

9,265

   

$

25,915

   

$

25,285

 

Cost of revenue

   

3,382

     

3,221

     

4,091

     

11,164

     

12,975

 

Depreciation and amortization

   

1,290

     

1,154

     

1,218

     

3,626

     

3,675

 

Impairment of intangible assets

   

3,836

     

-

     

-

     

3,836

     

-

 

Selling, general and administrative

   

1,332

     

1,563

     

1,599

     

4,515

     

2,999

 

Operating income (loss)

 

$

(1,473)

   

$

2,867

   

$

2,357

   

$

2,774

   

$

5,636

 
                                         

Systems Integration

                                       

Revenue

 

$

8,416

   

$

10,450

   

$

9,673

   

$

28,988

   

$

27,957

 

Cost of revenue

   

7,090

     

7,481

     

7,415

     

22,458

     

19,502

 

Depreciation and amortization

   

157

     

157

     

155

     

478

     

1,456

 

Impairment of goodwill

   

-

     

-

     

-

     

1,386

     

-

 

Selling, general and administrative

   

374

     

302

     

464

     

1,080

     

2,158

 

Operating income

 

$

795

   

$

2,510

   

$

1,639

   

$

3,586

   

$

4,841

 

 

NOTE: Consolidated balances include the segments above along with corporate activities and intercompany eliminations.

 

 

RIGNET, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 
   

September 30,

   

December 31,

 
   

 

2020

   

 

2019

 
   

(in thousands, except share amounts)

 

ASSETS

 

Current assets:

               

Cash and cash equivalents

 

$

16,887

   

$

12,941

 

Restricted cash

   

1,500

     

42

 

Accounts receivable, net

   

58,583

     

67,059

 

Costs and estimated earnings in excess of billings on uncompleted

   contracts (CIEB)

   

14,421

     

13,275

 

Prepaid expenses and other current assets

   

5,141

     

6,500

 

Total current assets

   

96,532

     

99,817

 

Property, plant and equipment, net

   

51,005

     

60,118

 

Restricted cash

   

-

     

1,522

 

Goodwill

   

19,982

     

46,792

 

Intangibles, net

   

20,392

     

30,145

 

Right-of-use lease asset

   

6,193

     

6,829

 

Deferred tax and other assets

   

5,378

     

5,757

 

TOTAL ASSETS

 

$

199,482

   

$

250,980

 

LIABILITIES AND EQUITY

 

Current liabilities:

               

Accounts payable

 

$

21,226

   

$

28,517

 

Accrued expenses

   

16,828

     

16,660

 

Current maturities of long-term debt

   

8,836

     

10,793

 

Income taxes payable

   

1,223

     

2,649

 

GX dispute accrual

   

-

     

750

 

Deferred revenue and other current liabilities

   

19,121

     

11,173

 

Total current liabilities

   

67,234

     

70,542

 

Long-term debt

   

100,241

     

96,934

 

Deferred revenue

   

767

     

855

 

Deferred tax liability

   

1,989

     

2,672

 

Right-of-use lease liability - long-term portion

   

5,764

     

6,329

 

Other liabilities

   

16,304

     

26,771

 

Total liabilities

   

192,299

     

204,103

 
                 

Equity:

               

Stockholders' equity

               

Preferred stock - $0.001 par value; 10,000,000 shares authorized; no

   shares issued or outstanding at September 30, 2020 and December 31, 2019

   

-

     

-

 

Common stock - $0.001 par value; 190,000,000 shares authorized;

   20,556,408 and 19,979,284 shares issued and outstanding at

   September 30, 2020 and December 31, 2019, respectively

   

21

     

20

 

Treasury stock - 448,586 and 203,756 shares at September 30, 2020 and

   December 31, 2019, respectively, at cost

   

(3,285)

     

(2,693)

 

Additional paid-in capital

   

189,753

     

184,571

 

Accumulated deficit

   

(152,373)

     

(115,673)

 

Accumulated other comprehensive loss

   

(27,011)

     

(19,502)

 

Total stockholders' equity

   

7,105

     

46,723

 

Non-redeemable, non-controlling interest

   

78

     

154

 

Total equity

   

7,183

     

46,877

 

TOTAL LIABILITIES AND EQUITY

 

$

199,482

   

$

250,980

 

 

RIGNET, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 
   

Nine Months Ended

September 30,

 
   

2020

   

2019

 
   

(in thousands)

 

Cash flows from operating activities:

               

Net loss

 

$

(36,490)

   

$

(18,349)

 

Adjustments to reconcile net loss to net cash provided by operations:

               

Depreciation and amortization

   

20,219

     

23,763

 

Impairment of goodwill and intangible assets

   

26,977

     

-

 

Stock-based compensation

   

5,188

     

7,132

 

Amortization of deferred financing costs

   

284

     

252

 

Deferred taxes

   

(595)

     

4,902

 

Change in fair value of earn-out/contingent consideration

   

3,916

     

1,284

 

Accretion of discount of contingent consideration payable for acquisitions

   

468

     

262

 

(Gain) loss on sales of property, plant and equipment, net of retirements

   

195

     

19

 

Changes in operating assets and liabilities, net of effect of acquisition:

               

Accounts receivable, net

   

7,501

     

4,995

 

Costs and estimated earnings in excess of billings on uncompleted contracts (CIEB)

   

(243)

     

(4,536)

 

Prepaid expenses and other assets

   

1,472

     

128

 

Right-of-use lease asset

   

636

     

1,214

 

Accounts payable

   

(4,366)

     

5,355

 

Accrued expenses

   

(225)

     

36

 

GX Dispute payment

   

(750)

     

(50,000)

 

Deferred revenue

   

(1,257)

     

1,635

 

Right-of-use lease liability

   

(827)

     

(1,593)

 

Other liabilities

   

(3,383)

     

(2,444)

 

Net cash provided by (used in) operating activities

   

18,720

     

(25,945)

 
                 

Cash flows from investing activities:

               

Capital expenditures

   

(10,698)

     

(16,776)

 

Proceeds from sales of property, plant and equipment

   

27

     

300

 

Net cash used in investing activities

   

(10,671)

     

(16,476)

 
                 

Cash flows from financing activities:

               

Issuance of common stock upon the exercise of stock options and the vesting of restricted stock

   

1

     

4

 

Stock withheld to cover employee taxes on stock-based compensation

   

(598)

     

(1,412)

 

Subsidiary distributions to non-controlling interest

   

(286)

     

(275)

 

Proceeds from borrowings

   

15,550

     

48,500

 

Proceeds from Paycheck Protection Program Loan

   

6,298

     

-

 

Repayments of long-term debt

   

(23,163)

     

(11,413)

 

Payment of financing fees

   

(485)

     

(486)

 

Net cash provided by (used in) financing activities

   

(2,683)

     

34,918

 

Net change in cash and cash equivalents

   

5,366

     

(7,503)

 
                 

Cash and cash equivalents including restricted cash:

               

Balance, January 1,

   

14,505

     

23,296

 

Changes in foreign currency translation

   

(1,484)

     

35

 

Balance, September 30,

 

$

18,387

   

$

15,828

 

 

RIGNET, INC.

Selected Operational Data

MCS Site Count

(Unaudited)

 
   

3rd
Quarter

   

2nd
Quarter

   

1st
Quarter

   

4th
Quarter

   

3rd
Quarter

 
   

2020

   

2020

   

2020

   

2019

   

2019

 

Selected Operational Data:

                                       

Offshore drilling rigs (1)

   

176

     

194

     

196

     

185

     

184

 

Offshore Production

   

359

     

343

     

386

     

385

     

384

 

Maritime

   

173

     

165

     

177

     

171

     

184

 

Other sites (2)

   

482

     

527

     

592

     

599

     

634

 

Total

   

1,190

     

1,229

     

1,351

     

1,340

     

1,386

 

Project Backlog (in thousands)

 

$

12,352

   

$

15,856

   

$

22,380

   

$

26,178

   

$

35,855

 

 

(1)

Includes jack up, semi-submersible and drillship rigs

(2)

Includes U.S. and International land sites, completion sites, man-camps, remote offices, and supply bases and offshore-related supply bases, shore offices, tender rigs and platform rigs

 

 

RigNet logo (PRNewsfoto/RigNet, Inc.)

 

 

SOURCE RigNet, Inc.

For further information: Media / Investor Relations Contact: Lee M. Ahlstrom, SVP & CFO, RigNet, Inc., Tel: +1 (281) 674-0699, investor.relations@rig.net