rnet-10q_20200331.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission file number 001-35003

 

RigNet, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

76-0677208

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

15115 Park Row Blvd, Suite 300

Houston, Texas

 

77084-4947

(Address of principal executive offices)

 

(Zip Code)

(281) 674-0100

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value per share

RNET

NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer  

 

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

At April 30, 2020, there were outstanding 20,455,615 shares of the registrant’s Common Stock.

 

 

 

 

 

 

 


Table of Contents

 

 

  

 

  

Page

 

 

 

 

 

 

  

PART I – FINANCIAL INFORMATION

  

 

 

 

 

 

 

Glossary

 

 

 

3

Item 1

  

Condensed Consolidated Financial Statements (Unaudited)

  

5

 

 

 

 

 

Item 2

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

22

 

 

 

 

 

Item 3

 

Quantitative and Qualitative Disclosures about Market Risk

 

32

 

 

 

 

 

Item 4

  

Controls and Procedures

  

32

 

 

 

 

 

 

  

PART II – OTHER INFORMATION

  

 

 

 

 

 

 

Item 1

  

Legal Proceedings

  

33

 

 

 

 

 

Item 1A

  

Risk Factors

  

33

 

 

 

 

 

Item 2

  

Unregistered Sales of Equity Securities and Use of Proceeds

  

34

 

 

 

 

 

Item 3

  

Defaults Upon Senior Securities

  

34

 

 

 

 

 

Item 4

  

Mine Safety Disclosures

  

34

 

 

 

 

 

Item 5

  

Other Information

  

34

 

 

 

 

 

Item 6

  

Exhibits

  

34

 

 

2


Glossary

The table below sets forth a number of terms commonly used in our current and periodic reports filed with the Securities and Exchange Commission and is provided as a reference for the readers of our filings.

 

Adjusted EBITDA

 

A non-GAAP measure. Net loss plus (minus) interest expense, income tax expense (benefit), depreciation and amortization, impairment of goodwill, intangibles, property, plant and equipment, foreign exchange impact of intercompany financing activities, (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 expense, acquisition costs, executive departure costs, restructuring charges, the GX Dispute, the GX Dispute Phase II costs and non-recurring items. A reconciliation of Adjusted EBITDA to Net loss can be found in Part 1, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

AI

 

Artificial Intelligence

Apps

 

Applications

ASC

 

Accounting Standards Codification

ASU

 

Accounting Standards Update

AVI

 

Adaptive Video Intelligence

B2B

 

Business to Business

BOP

 

Blow-Out Preventer

CIEB

 

Costs and Estimated Earnings in Excess of Billings on uncompleted contracts

Credit Agreement

 

Third Amendment and Joinder to the Third Amended and Restated Credit Agreement dated as of February 21, 2020 among RigNet, Inc. as Borrower, the Subsidiaries of RigNet, Inc. party thereto as Guarantors, Bank of America, N.A. as Administrative Agent, Swingline Lender and L/C Issuer, BBVA Compass, as Syndication Agent, the Lenders party hereto and Merrill Lynch, Pierce, Fenner & Smith Incorporated as Sole Lead Arranger and Sole Bookrunner, as amended.

Consolidated Leverage Ratio

 

The ratio, as of any given date, of Consolidated Funded Indebtedness to Consolidated EBITDA for the most recently completed Measurement Period (as each such capitalized term is defined in the Credit Agreement)

COVID-19

 

Coronavirus

Cyphre®

 

Cyphre Security Solutions, LLC, acquired in 2017, provides cybersecurity solutions with advanced enterprise data protection

ECS

 

Enhanced Cyber Security

EPC

 

Engineering, Procurement and Construction

Exchange Act

 

The United States Securities Exchange Act of 1934, as amended

FASB

 

Financial Accounting Standards Board

FCC

 

Federal Communications Commission

GAAP

 

Generally Accepted Accounting Principles in the United States

GX

 

Inmarsat plc’s Global Express satellite bandwidth service

GX Dispute

 

Inmarsat, a satellite telecommunications company, filed arbitration with the International Centre for Dispute Resolution tribunal in October 2016 concerning a January 2014 take-or-pay agreement to purchase up to $65.0 million, under certain conditions, of GX capacity from Inmarsat over several years. This arbitration and related developments are collectively referred to as the GX Dispute.

GX Dispute Phase II

 

The portion of the GX Dispute arbitration which was to address RigNet’s counterclaims against Inmarsat on a variety of subjects, as well as Inmarsat’s additional claims and for interest and attorneys’ fees.

Intelie

 

Intelie soluções em Informática SA, acquired in 2018, provides machine learning and real-time predictive analytics

IoT

 

Internet-of-Things

LIBOR

 

London Interbank Offered Rate

3


LTE

 

A 4G and 5G technology, Long Term Evolution

MCS

 

Managed Communications Services

NASDAQ

 

NASDAQ Global Select Market, where RigNet’s common shares are listed for trading

Nessco

 

Nessco Group Holdings LTD, acquired in 2012, provides Systems Integration solutions

NOC

 

Network Operations Center

OPEC

 

Organization of Petroleum Exporting Countries

PLC

 

Programmable Logic Controller

SaaS

 

Software as a Service

SAB

 

Staff Accounting Bulletin

SCADA

 

Supervisory Control and Data Acquisition

SEC

 

The United States Securities and Exchange Commission

SI

 

Systems Integration

TECNOR

 

Orgtec S.A.P.I. de C.V., d.b.a. TECNOR, acquired in March 2016, increases solutions offerings in Mexico

The Tax Act

 

The Tax Cuts and Jobs Act of 2017

 


4


PART I – FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements

 

RIGNET, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

March 31,

 

 

December 31,

 

 

 

 

2020

 

 

 

2019

 

 

 

(in thousands, except share amounts)

 

ASSETS

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

13,614

 

 

$

12,941

 

Restricted cash

 

 

40

 

 

 

42

 

Accounts receivable, net

 

 

63,529

 

 

 

67,059

 

Costs and estimated earnings in excess of billings on uncompleted

   contracts (CIEB)

 

 

15,848

 

 

 

13,275

 

Prepaid expenses and other current assets

 

 

6,046

 

 

 

6,500

 

Total current assets

 

 

99,077

 

 

 

99,817

 

Property, plant and equipment, net

 

 

57,297

 

 

 

60,118

 

Restricted cash

 

 

1,523

 

 

 

1,522

 

Goodwill

 

 

20,464

 

 

 

46,792

 

Intangibles, net

 

 

26,871

 

 

 

30,145

 

Right-of-use lease asset

 

 

6,660

 

 

 

6,829

 

Deferred tax and other assets

 

 

5,702

 

 

 

5,757

 

TOTAL ASSETS

 

$

217,594

 

 

$

250,980

 

LIABILITIES AND EQUITY

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

23,252

 

 

$

28,517

 

Accrued expenses

 

 

17,635

 

 

 

16,660

 

Current maturities of long-term debt

 

 

8,747

 

 

 

10,793

 

Income taxes payable

 

 

2,420

 

 

 

2,649

 

GX dispute accrual

 

 

750

 

 

 

750

 

Deferred revenue and other current liabilities

 

 

11,966

 

 

 

11,173

 

Total current liabilities

 

 

64,770

 

 

 

70,542

 

Long-term debt

 

 

105,087

 

 

 

96,934

 

Deferred revenue

 

 

853

 

 

 

855

 

Deferred tax liability

 

 

2,034

 

 

 

2,672

 

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

 

 

6,166

 

 

 

6,329

 

Other liabilities

 

 

22,614

 

 

 

26,771

 

Total liabilities

 

 

201,524

 

 

 

204,103

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

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

   shares issued or outstanding at March 31, 2020 and December 31, 2019

 

 

-

 

 

 

-

 

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

   20,454,705 and 19,979,284 shares issued and outstanding at

   March 31, 2020 and December 31, 2019, respectively

 

 

20

 

 

 

20

 

Treasury stock - 432,432 and 203,756 shares at March 31, 2020 and

   December 31, 2019, respectively, at cost

 

 

(3,271

)

 

 

(2,693

)

Additional paid-in capital

 

 

188,425

 

 

 

184,571

 

Accumulated deficit

 

 

(142,514

)

 

 

(115,673

)

Accumulated other comprehensive loss

 

 

(26,659

)

 

 

(19,502

)

Total stockholders' equity

 

 

16,001

 

 

 

46,723

 

Non-redeemable, non-controlling interest

 

 

69

 

 

 

154

 

Total equity

 

 

16,070

 

 

 

46,877

 

TOTAL LIABILITIES AND EQUITY

 

$

217,594

 

 

$

250,980

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

5


 

RIGNET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

 

 

(in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

58,761

 

 

$

57,510

 

Expenses:

 

 

 

 

 

 

 

 

Cost of revenue (excluding depreciation and amortization)

 

 

37,950

 

 

 

36,456

 

Depreciation and amortization

 

 

6,931

 

 

 

8,912

 

Impairment of goodwill

 

 

23,141

 

 

 

-

 

Selling and marketing

 

 

2,812

 

 

 

3,793

 

General and administrative

 

 

13,829

 

 

 

16,470

 

Total expenses

 

 

84,663

 

 

 

65,631

 

Operating loss

 

 

(25,902

)

 

 

(8,121

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest expense

 

 

(1,528

)

 

 

(1,238

)

Other income (expense), net

 

 

(321

)

 

 

72

 

Loss before income taxes

 

 

(27,751

)

 

 

(9,287

)

Income tax benefit (expense)

 

 

980

 

 

 

(2,666

)

Net loss

 

 

(26,771

)

 

 

(11,953

)

Less: Net loss attributable to

   non-redeemable, non-controlling interest

 

 

70

 

 

 

30

 

Net loss attributable to RigNet, Inc.

   stockholders

 

$

(26,841

)

 

$

(11,983

)

COMPREHENSIVE LOSS

 

 

 

 

 

 

 

 

Net loss

 

$

(26,771

)

 

$

(11,953

)

Foreign currency translation

 

 

(7,157

)

 

 

158

 

Comprehensive loss

 

 

(33,928

)

 

 

(11,795

)

Less: Comprehensive income attributable to

   non-controlling interest

 

 

70

 

 

 

30

 

Comprehensive loss attributable to

   RigNet, Inc. stockholders

 

$

(33,998

)

 

$

(11,825

)

LOSS PER SHARE - BASIC AND DILUTED

 

 

 

 

 

 

 

 

Net loss attributable to RigNet, Inc. common

   stockholders

 

$

(26,841

)

 

$

(11,983

)

Net loss per share attributable to RigNet, Inc.

   common stockholders, basic

 

$

(1.34

)

 

$

(0.63

)

Net loss per share attributable to RigNet, Inc.

   common stockholders, diluted

 

$

(1.34

)

 

$

(0.63

)

Weighted average shares outstanding, basic

 

 

20,081

 

 

 

18,949

 

Weighted average shares outstanding, diluted

 

 

20,081

 

 

 

18,949

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

6


 

RIGNET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

 

 

(in thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(26,771

)

 

$

(11,953

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

6,931

 

 

 

8,912

 

Impairment of goodwill

 

 

23,141

 

 

 

-

 

Stock-based compensation

 

 

3,854

 

 

 

4,458

 

Amortization of deferred financing costs

 

 

93

 

 

 

61

 

Deferred taxes

 

 

(626

)

 

 

2,469

 

Accretion of discount of contingent consideration payable for acquisitions

 

 

134

 

 

 

94

 

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

 

 

30

 

 

 

(7

)

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

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

2,490

 

 

 

(6,777

)

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

 

 

(3,000

)

 

 

1,439

 

Prepaid expenses and other assets

 

 

213

 

 

 

85

 

Right-of-use lease asset

 

 

169

 

 

 

-

 

Accounts payable

 

 

(2,689

)

 

 

4,058

 

Accrued expenses

 

 

1,147

 

 

 

(38

)

Deferred revenue

 

 

861

 

 

 

3,074

 

Right-of-use lease liability

 

 

(231

)

 

 

-

 

Other liabilities

 

 

(2,195

)

 

 

(1,227

)

Net cash provided by operating activities

 

 

3,551

 

 

 

4,648

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(5,337

)

 

 

(4,814

)

Proceeds from sales of property, plant and equipment

 

 

-

 

 

 

66

 

Net cash used in investing activities

 

 

(5,337

)

 

 

(4,748

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

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

 

 

-

 

 

 

1

 

Stock withheld to cover employee taxes on stock-based compensation

 

 

(578

)

 

 

(1,407

)

Subsidiary distributions to non-controlling interest

 

 

(155

)

 

 

(135

)

Proceeds from borrowings

 

 

3,750

 

 

 

-

 

Repayments of long-term debt

 

 

(41

)

 

 

(1,295

)

Payment of financing fees

 

 

(485

)

 

 

(250

)

Net cash provided by (used in) financing activities

 

 

2,491

 

 

 

(3,086

)

Net change in cash and cash equivalents

 

 

705

 

 

 

(3,186

)

 

 

 

 

 

 

 

 

 

Cash and cash equivalents including restricted cash:

 

 

 

 

 

 

 

 

Balance, January 1,

 

 

14,505

 

 

 

23,296

 

Changes in foreign currency translation

 

 

(33

)

 

 

91

 

Balance, March 31,

 

$

15,177

 

 

$

20,201

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures:

 

 

 

 

 

 

 

 

Income taxes paid

 

$

1,081

 

 

$

737

 

Interest paid

 

 

1,245

 

 

 

1,019

 

Non-cash investing - capital expenditures accrued

 

 

868

 

 

 

4,398

 

Right-of-use operating lease entered into

 

 

121

 

 

 

-

 

 

 

 

March 31,

 

 

March 31,

 

 

 

 

2020

 

 

 

2019

 

Cash and cash equivalents

 

$

13,614

 

 

$

18,660

 

Restricted cash - current portion

 

 

40

 

 

 

42

 

Restricted cash - long-term portion

 

 

1,523

 

 

 

1,499

 

Cash and cash equivalents including restricted cash

 

$

15,177

 

 

$

20,201

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

 

7


 

RIGNET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

 

 

 

Common

Stock

 

 

 

 

 

 

Treasury

Stock

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Accumulated

Other

 

 

Total

 

 

Non-Redeemable,

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Paid-In

Capital

 

 

Accumulated

Deficit

 

 

Comprehensive

Loss

 

 

Stockholders'

Equity

 

 

Non-Controlling

Interest

 

 

Total

Equity

 

 

 

(dollars and shares in thousands)

 

Balance, January 1, 2019

 

 

19,465

 

 

$

19

 

 

 

92

 

 

$

(1,270

)

 

$

172,946

 

 

$

(96,517

)

 

$

(19,254

)

 

$

55,924

 

 

$

60

 

 

$

55,984

 

Issuance of common stock upon the

  vesting of Restricted Stock Units,

   net of share cancellations

 

 

246

 

 

 

1

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1

 

 

 

-

 

 

 

1

 

Stock withheld to cover employee

   taxes on stock-based compensation

 

 

-

 

 

 

-

 

 

 

106

 

 

 

(1,407

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,407

)

 

 

-

 

 

 

(1,407

)

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,458

 

 

 

-

 

 

 

-

 

 

 

4,458

 

 

 

-

 

 

 

4,458

 

Foreign currency translation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

158

 

 

 

158

 

 

 

-

 

 

 

158

 

Non-controlling owner distributions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(135

)

 

 

(135

)

Net income (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(11,983

)

 

 

-

 

 

 

(11,983

)

 

 

30

 

 

 

(11,953

)

Balance, March 31, 2019

 

 

19,711

 

 

$

20

 

 

 

198

 

 

$

(2,677

)

 

$

177,404

 

 

$

(108,500

)

 

$

(19,096

)

 

$

47,151

 

 

$

(45

)

 

$

47,106

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2020

 

 

19,979

 

 

$

20

 

 

 

204

 

 

$

(2,693

)

 

$

184,571

 

 

$

(115,673

)

 

$

(19,502

)

 

$

46,723

 

 

$

154

 

 

$

46,877

 

Issuance of common stock upon the

  vesting of Restricted Stock Units,

   net of share cancellations

 

 

475

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock withheld to cover employee

   taxes on stock-based compensation

 

 

-

 

 

 

-

 

 

 

228

 

 

 

(578

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(578

)

 

 

-

 

 

 

(578

)

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,854

 

 

 

-

 

 

 

-

 

 

 

3,854

 

 

 

-

 

 

 

3,854

 

Foreign currency translation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(7,157

)

 

 

(7,157

)

 

 

-

 

 

 

(7,157

)

Non-controlling owner distributions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(155

)

 

 

(155

)

Net income (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(26,841

)

 

 

-

 

 

 

(26,841

)

 

 

70

 

 

 

(26,771

)

Balance, March 31, 2020

 

 

20,454

 

 

$

20

 

 

$

432

 

 

$

(3,271

)

 

$

188,425

 

 

$

(142,514

)

 

$

(26,659

)

 

$

16,001

 

 

$

69

 

 

$

16,070

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

8


NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1 – Basis of Presentation

The interim unaudited condensed consolidated financial statements of RigNet, Inc. (the Company or RigNet) include all adjustments which, in the opinion of management, are necessary for a fair presentation of the Company’s financial position and results of operations. All such adjustments are of a normal recurring nature. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and Rule 10-01 of Regulation S-X. The preparation of these financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying footnotes. Estimates and assumptions about future events and their effects cannot be perceived with certainty. Estimates may change as new events occur, as more experience is acquired, as additional information becomes available and as the Company’s operating environment changes. Actual results could differ from estimates. These interim financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 11, 2020.

Significant Accounting Policies

In addition to the accounting policies described below, please refer to RigNet’s Annual Report on Form 10-K for the fiscal year 2019 for information regarding the Company’s accounting policies.

Revenue Recognition – Revenue from Contracts with Customers

Revenue is recognized to depict the transfer of promised goods or services in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.

Revenue Recognition – Managed Communications Services (MCS) and Applications and Internet-of-Things (Apps & IoT)

MCS and Apps & IoT customers are primarily served under fixed-price contracts, either on a monthly, usage or day rate basis or for equipment sales and consulting services. Contracts are generally in the form of Master Service Agreements, or MSAs, with specific services being provided under individual service orders.  Offshore contracts generally have a term of up to five years with renewal options. Land-based contracts are generally shorter term or terminable on short notice without a penalty. Service orders are executed under the MSA for individual remote sites or groups of sites, and generally permit early termination on short notice without penalty in the event of force majeure, breach of the MSA or cold stacking of a drilling rig (when a rig is taken out of service and is expected to be idle for a protracted period of time). With certain customers, our contracts require that the contract backlog on stack rigs be transferred to other units, preserving the total contract value.

Performance Obligations Satisfied Over Time The delivery of service represents the single performance obligation under MCS and Apps & IoT contracts. Revenue for contracts is generally recognized over time as service is transferred to the customer and the Company expects to be entitled to the agreed monthly, usage or day rate in exchange for those services.

Performance Obligations Satisfied at a Point in Time The delivery of equipment represents the single performance obligation under equipment sale contracts. Revenue for equipment sales is generally recognized upon delivery of equipment to customers.

Revenue Recognition – Systems Integration

Revenues related to long-term, fixed-price Systems Integration contracts for customized network solutions are recognized based on the percentage of completion for the contract. At any point, RigNet has numerous contracts in progress, all of which are at various stages of completion. Accounting for revenues and profits on long-term contracts requires estimates of total estimated contract costs and estimates of progress toward completion to determine the extent of revenue and profit recognition.

Performance Obligations Satisfied Over Time The delivery of a Systems Integration solution represents the single performance obligation under Systems Integration contracts. Progress towards completion on fixed-price contracts is measured based on the ratio of costs incurred to total estimated contract costs (the cost-to-cost method).

9


NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

These estimates may be revised as additional information becomes available or as specific project circumstances change.

The Company reviews all material contracts on a monthly basis and revises the estimates as appropriate for developments such as providing services, purchasing third-party materials and equipment at costs differing from those previously estimated, and incurring or expecting to incur schedule issues. Changes in estimated final contract revenues and costs can either increase or decrease the final estimated contract profit or loss. Profits are recorded in the period in which a change in estimate is recognized, based on the progress achieved through the period of change. Anticipated losses on contracts are recorded in full in the period in which they become evident. Revenue recognized in excess of amounts billed is classified as a current asset under Costs and estimated earnings in excess of billings on uncompleted contracts (CIEB).

Systems Integration contracts are billed in accordance with the terms of the contract which are typically either based on milestones or specified time intervals. As of March 31, 2020, and December 31, 2019, the amount of CIEB related to Systems Integration projects was $15.8 million and $13.3 million, respectively. Under long-term contracts, amounts recorded in CIEB may not be realized or paid within a one-year period. As of March 31, 2020 and December 31, 2019, $1.3 million and $1.0 million, respectively, of amounts billed to customers in excess of revenue recognized to date were classified as a current liability, under deferred revenue and other current liabilities.  

Variable Consideration – Systems Integration - The Company records revenue on contracts relating to certain probable claims and unapproved change orders by including in revenue an amount less than or equal to the amount of costs incurred to date relating to these probable claims and unapproved change orders, thus recognizing no profit until such time as claims are finalized or change orders are approved. The amount of unapproved change orders and claim revenues is included in the Company’s Condensed Consolidated Balance Sheets as part of CIEB. No material unapproved change orders or claims revenue were included in CIEB as of March 31, 2020, and December 31, 2019. As new facts become known, an adjustment to the estimated recovery is made and reflected in the current period.

Backlog - As of March 31, 2020, we have a backlog for our percentage of completion projects of $22.4 million, which will be recognized over the remaining contract term for each contract. The percentage of completion contract terms are typically one to three years. As of December 31, 2019, we had a backlog for our percentage of completion projects of $26.2 million.

Leases

Effective with adoption of Accounting Standards Update No. 2016-02 (ASU 2016-02), Leases (the new lease standard) on January 1, 2019, we determine if an arrangement is a lease at inception. Operating leases right-of-use assets and liabilities are included in right-to-use lease asset, deferred revenue and other current liabilities, and right-to-use lease liability – long-term portion on our condensed consolidated balance sheets. Finance leases are included in property, plant and equipment; current maturities of long-term debt; and long-term debt on our condensed consolidated balance sheets.  

Operating lease right-to-use assets and liabilities are recognized based on the present value of the future minimum lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update No. 2016-13 (ASU 2016-13), which measures credit losses on most financial assets and certain other instruments that are not measured at fair value through net income. The update amends the impairment model to utilize a current expected credit loss (CECL) methodology in place of the incurred loss methodology for financial instruments, including trade receivables. The amendment requires entities to consider a broader range of information to estimate expected credit losses, which may result in earlier recognition of losses. Companies will apply this standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The new standard is effective for interim and annual reporting periods beginning after December 15, 2019. The

10


NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Company adopted the guidance effective January 1, 2020, and the guidance did not have a material impact on the Company’s condensed consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13 (ASU 2018-13), which eliminates disclosures, modifies existing disclosures and adds new Fair Value disclosure requirements to Topic 820 for the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The ASU is effective for annual and interim reporting periods beginning after December 15, 2019. The Company adopted the guidance effective January 1, 2020, and the guidance did not have a material impact on the Company’s condensed consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-15 (ASU 2018-15), which provides guidance on implementation costs incurred in a cloud computing arrangement that is a service contract. The ASU is effective for annual and interim reporting periods beginning after December 15, 2019. The Company adopted the guidance effective January 1, 2020, and the guidance did not have a material impact on the Company’s condensed consolidated financial statements.

 

In December 2019, the FASB issued Accounting Standards Update No. 2019-12 (ASU  2019-12), Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.  This ASU removes certain exceptions for investments, intraperiod allocations and interim tax calculations and adds guidance to reduce complexity in accounting for income taxes. We will be required to adopt the amended guidance in annual and interim periods beginning after December 15, 2020, with early adoption permitted. The various amendments in Update 2019-12 are applied on a retrospective basis, modified retrospective basis and prospective basis, depending on the amendment.  We are in the process of evaluating the impact this amendment will have on our consolidated financial statements.

 

In March 2020, the FASB issued Accounting Standards Update No. 2020-04 (ASU  2020-04), Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.  This ASU provides optional guidance for a limited period of time to ease potential burden in accounting or recognizing the effects of the LIBOR or another reference rate reform on financing rate. The amendments are effective as of March 12, 2020 through December 31, 2022.  We are currently in the process of evaluating the impact the transition from LIBOR to alternative reference rates, but we do not expect a material impact on our consolidated financial statements.

Note 2 – Business and Credit Concentrations

The Company is exposed to various business and credit risks including interest rate, foreign currency, credit and liquidity risks.

Interest Rate Risk

The Company has significant interest-bearing liabilities at variable interest rates which generally price monthly. The Company’s variable borrowing rates are tied to LIBOR resulting in interest rate risk (see Note 5 – Long-Term Debt). The Company presently does not use financial instruments to hedge interest rate risk, but evaluates this on a regular basis and may utilize financial instruments in the future if deemed necessary.

Foreign Currency Risk

The Company has exposure to foreign currency risk, as a portion of the Company’s activities are conducted in currencies other than U.S. dollars. Currently, the Norwegian Kroner, the British Pound Sterling and the Brazilian Real are the currencies that could materially impact the Company’s financial position and results of operations. The Company presently does not hedge these risks, but evaluates financial risk on a regular basis and may utilize financial instruments in the future if deemed necessary. Foreign currency translations are reported as accumulated other comprehensive income (loss) in the Company’s condensed consolidated financial statements.

Credit and Customer Concentration Risk

Credit risk, with respect to accounts receivable, is due to customers being concentrated in the oil and gas, maritime, pipeline, engineering and construction industries. The Company mitigates the risk of financial loss from defaults through defined collection terms in each contract or service agreement and periodic evaluations of the

11


NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

collectability of accounts receivable. The Company provides an allowance for doubtful accounts, which is adjusted when the Company becomes aware of a specific customer’s inability to meet its financial obligations or as a result of changes in the overall aging of accounts receivable. The company determined ASU 2016-13 did not have a material impact on allowance for doubtful accounts. Although no single customer comprised over 10% of our revenue for the three months ended March 31, 2020, our top 5 customers generated 26.7% of the Company’s revenue for the three months ended March 31, 2020.

Liquidity Risk

The Company maintains cash and cash equivalent balances with major financial institutions which, at times, exceed federally insured limits. The Company monitors the financial condition of the financial institutions and has not experienced losses associated with these accounts during 2020 or 2019. Liquidity risk is managed by continuously monitoring forecasted and actual cash flows and by matching the maturity profiles of financial assets and liabilities (see Note 5 – Long-Term Debt).

Note 3 – Goodwill and Intangibles

Goodwill

Goodwill resulted from prior acquisitions as the consideration paid for the acquired businesses exceeded the fair value of acquired identifiable net tangible and intangible assets. Goodwill is reviewed for impairment at least annually with additional evaluations being performed when events or circumstances indicate that the carrying value of these assets may not be recoverable.

The oil and gas industry experienced an unprecedented disruption during the first quarter of 2020 as a result of a combination of factors, including the coronavirus (“COVID-19”) pandemic and disagreements between the Organization of Petroleum Exporting Countries (OPEC) in March 2020 regarding reduction on production of oil. These market conditions have significantly impacted the Company’s internal forecast. As a result, the Company performed an interim goodwill impairment test. The Company used the income approach to estimate the fair value of its reporting units, but also considered the market approach to validate the results. The income approach estimates the fair value by discounting each reporting unit’s estimated future cash flows using the Company’s discount rate. Some of the significant assumptions inherent in the income approach include the estimated future net annual cash flows for each reporting unit and the discount rate. The Company selected the assumptions used in the discounted cash flow projections using historical information with supplemental data by current and anticipated market conditions and estimated growth rates. The Company's estimates are based upon assumptions believed to be reasonable. The Company determined that the carrying amount in two of our reporting units was in excess of their fair value which results in a goodwill impairment charge of $23.1 million. The charge fully impairs goodwill previously reported in MCS of $21.8 million and Systems Integration of $1.4 million.  The impairment test for Apps & IoT resulted in no impairment related to the goodwill balance of $20.5 million as of March 31, 2020. The Company's estimates are based upon assumptions believed to be reasonable. However, given the inherent uncertainty in determining the assumptions underlying a discounted cash flow analysis, particularly in the current volatile market, actual results may differ from those used in the Company's valuations. Any future downturn in our business could adversely impact the key assumptions in our impairment test.

As of March 31, 2020, and December 31, 2019, goodwill was $20.5 million and $46.8 million, respectively. Goodwill increases or decreases in value due to the effect of foreign currency translation, increases with acquisitions, and decreases in the event an impairment is recognized.

Intangibles

Intangibles consist of customer relationships, brand name, backlog, developed technology, covenants-not-to-compete and licenses acquired as part of the Company’s acquisitions. Intangibles also include internal-use software. The Company’s intangibles have useful lives ranging from 5.0 to 20.0 years and are amortized on a straight-line basis. Impairment testing is performed when events or circumstances indicate that the carrying value of the assets may not be recoverable.

Based on the indicators discussed above, the Company reviewed certain finite intangible and other long-lived assets for impairment as of March 31, 2020. The Company performed a recoverability analysis and determined that

12


NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

the recoverable value was in excess of its carrying value, therefore no impairment was recognized as of March 31, 2020.

As of March 31, 2020, and December 31, 2019, intangibles were $26.9 million and $30.1 million, respectively. During the three months ended March 31, 2020 and 2019, the Company recognized amortization expense of $2.1 million and $2.5 million, respectively.

The following table sets forth expected amortization expense of intangibles for the remainder of 2020 and the following years (in thousands):

 

2020

 

 

4,839

 

2021

 

 

6,190

 

2022

 

 

5,783

 

2023

 

 

5,152

 

2024

 

 

3,657

 

Thereafter

 

 

1,250

 

 

 

$

26,871

 

 

Note 4 – Restricted Cash

As of March 31, 2020, the Company had restricted cash of $0.1 million and $1.5 million in current and long-term assets, respectively. As of December 31, 2019, the Company had restricted cash of $0.1 million and $1.5 million in current and long-term assets, respectively. The restricted cash in long-term assets was primarily used to collateralize a performance bond in the MCS segment (see Note 5 – Long-Term Debt).

 

Note 5 – Long-Term Debt

As of March 31, 2020, and December 31, 2019, the following credit facilities and long-term debt arrangements with financial institutions were in place:

 

 

 

March 31,

 

 

December 31,

 

 

 

 

2020

 

 

 

2019

 

 

 

(in thousands)

 

Term Loan

 

$

16,000

 

 

$

5,000

 

Term-Out Loan

 

 

-

 

 

 

25,500

 

Revolving credit facility (RCF)

 

 

95,400

 

 

 

77,150

 

Vendor Finance Arrangement

 

 

2,790

 

 

 

-

 

Unamortized deferred financing costs

 

 

(857

)

 

 

(466

)

Finance lease

 

 

501

 

 

 

543

 

 

 

 

113,834

 

 

 

107,727

 

Less: Current maturities of long-term debt

 

 

(7,627

)

 

 

(10,627

)

Current maturities of Vendor Finance Arrangement

 

 

(954

)

 

 

-

 

Current maturities of finance lease

 

 

(166

)

 

 

(166

)

 

 

$

105,087

 

 

$

96,934

 

 

Credit Agreement

The Company and certain of its subsidiaries are party to the Third Amendment to the Third Amended and Restated Credit Agreement, dated as of February 21, 2020, with four participating financial institutions (as amended from time to time, the Credit Agreement), which provides for a $16.0 million term loan (Term Loan), a $100.0 million revolving credit facility (RCF) and a $30.0 million accordion feature. The Term Loan matures on March 31, 2022 with principal installments of $2.0 million due quarterly beginning June 30, 2020. The RCF and accordion, if exercised, mature on August 31, 2022.

The Credit Agreement bears interest at a rate of LIBOR plus a margin ranging from 1.75% to 3.25%, determined based on the Company’s Consolidated Leverage Ratio. LIBOR is subject to cease to exist entirely after

13


NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2021. The Credit Agreement addresses this situation with a LIBOR successor rate, being one or more Secured Overnight Financing Rates (SOFR) or another alternate benchmark rate. The Credit Agreement also addresses the situation in which no LIBOR successor rate has been determined. Interest on the Credit Agreement is payable monthly. The weighted average interest rate for the three months ended March 31, 2020 and 2019 were 4.4% and 5.2%, respectively, with an interest rate of 4.0% at March 31, 2020.

Term Loan

As of March 31, 2020, the outstanding principal amount of the Term Loan was $16.0 million, excluding the impact of unamortized deferred financing costs.

RCF

As of March 31, 2020, outstanding draws on the RCF were $95.4 million . In April 2020, the Company drew an additional $3.0 million on the RCF for liquidity purposes.

Covenants and Restrictions

The Company’s Credit Agreement contains certain covenants and restrictions, including restricting the payment of cash dividends under default, and maintaining certain financial covenants such as a Consolidated Leverage Ratio, of less than or equal to 3.25 through the third quarter of 2020. The Consolidated Leverage Ratio requirement then steps down to 3.00 through the second quarter of 2021 and then steps down to 2.75 for all remaining quarters. The Consolidated Fixed Charge Coverage ratio requirement is greater than or equal to 1.25 through the maturity of the Credit Agreement. If any default occurs related to these covenants that is not cured or waived, the unpaid principal and any accrued interest can be declared immediately due and payable. The facilities under the Credit Agreement are secured by substantially all the assets of the Company.

We believe we have accurately calculated and reported our required debt covenant calculations for the March 31, 2020 reporting period and are in compliance with the required covenant ratios. As of March 31, 2020, the Consolidated Leverage Ratio was 3.00 and Consolidated Fixed Charge Coverage Ratio was 2.14.

Vendor Finance Agreement

As of March 31, 2020, the Company had a vendor financing agreement in place, with an outstanding balance of $2.8 million. The outstanding balance bears interest at a rate of 6% and has quarterly payments of $0.3 million of principal and interest through January 2023.

Performance Bonds, Surety Bonds and Other Similar Instruments

As of March 31, 2020, there were $8.5 million of performance bonds, surety bonds and similar instruments outstanding of which $2.1 million is issued by the parties under the Credit Agreement.

In June 2016, the Company secured a performance bond facility with a lender in the amount of $1.5 million for its MCS segment. This facility has a maturity date of June 2021. The Company maintains restricted cash on a dollar for dollar basis to secure this facility.

Debt Maturities

The following table sets forth the aggregate principal maturities of long-term debt, net of deferred financing cost amortization, for the remainder of 2020 and the following years (in thousands):

 

2020

 

 

6,531

 

2021

 

 

8,731

 

2022

 

 

98,263

 

2023

 

 

309

 

Total debt, including current maturities

 

$

113,834

 

 

14


NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 6 – Fair Value Disclosures

The Company uses the following methods and assumptions to estimate the fair value of financial instruments:

 

Cash and Cash Equivalents — Reported amounts approximate fair value based on quoted market prices (Level 1).

 

Restricted Cash — Reported amounts approximate fair value.

 

Accounts Receivable — Reported amounts, net of the allowance for doubtful accounts, approximate fair value due to the short-term nature of these assets.

 

Accounts Payable, Including Income Taxes Payable and Accrued Expenses — Reported amounts approximate fair value due to the short-term nature of these liabilities.

 

Long-Term Debt — The carrying amount of the Company’s floating-rate debt approximates fair value since the interest rates paid are based on short-term maturities and recent quoted rates from financial institutions. The estimated fair value of debt was calculated based upon observable (Level 2) inputs regarding interest rates available to the Company at the end of each respective period.

The Company’s non-financial assets, such as goodwill, intangibles and property, plant and equipment, are measured at fair value, based on level 3 inputs, when there is an indicator of impairment and recorded at fair value only when an impairment charge is recognized.

The earn-out for Intelie is measured at fair value in each reporting period, based on level 3 inputs, with any change to the fair value recorded in the Condensed Consolidated Statements of Comprehensive Loss. As of March 31, 2020, the fair value of the earn-out was $9.7 million, with $4.4 million in deferred revenue and other current liabilities and $5.3 million in other long-term liabilities. As of December 31, 2019, the fair value of the earn-out was $9.7 million with $4.4 million in deferred revenue and other current liabilities and $5.3 million in other long-term liabilities. During the three months ended March 31, 2020 and 2019, RigNet recognized accreted interest expense on the Intelie earn-out of $0.1 million, and $0.1 million, respectively, with corresponding increases to other liabilities. The earn-out is payable in RigNet stock in portions on the first, second and third anniversary of the March 23, 2018 closing of the acquisition based on certain post-closing performance targets under the acquisition agreement.

The contingent consideration for Cyphre, a cybersecurity company acquired in May 2017, is measured at fair value in each reporting period, based on level 3 inputs, with any change to the fair value recorded in the Condensed Consolidated Statements of Comprehensive Loss. As of March 31, 2020, the fair value of the contingent consideration was $3.0 million of which $0.3 million is in other current liabilities and $2.7 million is in other long-term liabilities. As of December 31, 2019, the fair value of the contingent consideration was $3.1 million, of which $0.3 million is in other current liabilities and $2.7 million is in other long-term liabilities. During the three months ended March 31, 2020 and 2019, RigNet recognized accreted interest expense on the Cyphre contingent consideration of $0.1 million, and $0.1 million, respectively, with corresponding increases to other liabilities. During the three months ended March 31, 2020 and 2019, RigNet paid cash of $0.1 million and $0.1 million, respectively, in required royalty payments, with corresponding decreases to other liabilities.

Note 7 – Income Taxes

The Company’s effective income tax rate was 3.5% for the three months ended March 31, 2020. The Company’s effective income tax rate was (28.7%) for the three months ended March 31, 2019. The Company’s effective tax rate is affected by factors including changes in valuation allowances, fluctuations in income across jurisdictions with varying tax rates, and changes in income tax reserves, including related penalties and interest.

The Company has computed the provision for taxes for the current and comparative periods using the actual year-to-date effective tax rate. The Company’s financial projections for those periods did not provide the level of detail necessary to calculate a forecasted effective tax rate.

The Company received a notice informing us of an audit of the Company’s 2016-2017 income tax returns in Singapore. It is unclear if the audit and the appeals process, if necessary, will be completed within the next twelve months. The Company is in the early stages of the audit and is unable to quantify any potential settlement or outcome of the audit at this time.

15


NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

The Company believes that it is reasonably possible that a decrease of up to $3.9 million in unrecognized tax benefits, including related interest and penalties, may be necessary within the coming year due to lapse in statute of limitations.

Note 8 – Stock-Based Compensation

During the three months ended March 31, 2020, the Company granted a total of 599,990 stock-based awards to certain officers and employees of the Company under the 2019 Omnibus Incentive Plan (2019 Plan).

This stock grant was associated with the payment of the Company’s 2019 short term incentive plan to certain officers and employees that vested immediately.

During the three months ended March 31, 2020, 20,656 RSUs and 18,340 stock options were forfeited.

Stock-based compensation expense related to the Company’s stock-based compensation plans for the three months ended March 31, 2020, was $3.9 million and reported as a general and administrative expense in the Corporate segment. Stock-based compensation expense related to the Company’s stock-based compensation plans for the three months ended March 31, 2019, was $4.5 million. As of March 31, 2020, there was $5.7 million of total unrecognized compensation cost related to unvested options, RSUs and restricted stock expected to vest. This cost is expected to be recognized over a remaining weighted-average period of 2.1 years.

 

Note 9 – Earnings (loss) per Share

Basic earnings (loss) per share (EPS) are computed by dividing net loss attributable to RigNet common stockholders by the weighted average number of basic shares outstanding during the period. Basic shares equal the total of the common shares outstanding, but excludes the dilutive effect of common shares that could potentially be issued due to the exercise of stock options or vesting of restricted stock, RSUs or PSUs. Diluted EPS is computed by dividing loss attributable to RigNet common stockholders by the weighted average number of diluted shares outstanding during the period. Diluted shares equal the total of the basic shares outstanding and all potentially issuable shares, other than antidilutive shares, if any. The Company uses the treasury stock method to determine the dilutive effect. In periods when a net loss is reported, all common stock equivalents are excluded from the calculation because they would have an anti-dilutive effect if included, meaning the loss per share would be reduced. Therefore, in periods when a loss is reported, basic and dilutive loss per share are the same.

For the three months ended March 31, 2020, there were approximately 3,551,575 potentially issuable shares excluded from the Company’s calculation of diluted EPS that were excluded because to include them would have been anti-dilutive.

For the three months ended March 31, 2019, there were approximately 1,478,435 potentially issuable shares excluded from the Company’s calculation of diluted EPS that were excluded because the Company incurred a loss in the period and to include them would have been anti-dilutive.

Note 10 – Commitments and Contingencies

Global Xpress (GX) Dispute

Inmarsat plc (Inmarsat), a satellite telecommunications company, filed arbitration with the International Centre for Dispute Resolution tribunal (the panel) in October 2016 concerning a January 2014 take-or-pay agreement to purchase up to $65.0 million, under certain conditions, of GX capacity from Inmarsat over several years.

In June 2019, the Company announced that it reached a settlement with Inmarsat that concludes the GX Dispute. Pursuant to the settlement the Company paid $45.0 million in June 2019 and paid $5.0 million in July 2019 and will pay $0.8 million in the third quarter of 2020. The Company had an accrued liability of $0.8 million as of March 31, 2020.

The Company incurred GX Dispute Phase II costs of $2.1 million for the three months ended March 31, 2019.

16