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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 June 30, 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)

(281674-0100

(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 July 31, 2020, there were outstanding 20,554,132 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

  

23

 

 

 

 

 

Item 3

 

Quantitative and Qualitative Disclosures about Market Risk

 

35

 

 

 

 

 

Item 4

  

Controls and Procedures

  

35

 

 

 

 

 

 

  

PART II – OTHER INFORMATION

  

 

 

 

 

 

 

Item 1

  

Legal Proceedings

  

36

 

 

 

 

 

Item 1A

  

Risk Factors

  

36

 

 

 

 

 

Item 2

  

Unregistered Sales of Equity Securities and Use of Proceeds

  

38

 

 

 

 

 

Item 3

  

Defaults Upon Senior Securities

  

38

 

 

 

 

 

Item 4

  

Mine Safety Disclosures

  

38

 

 

 

 

 

Item 5

  

Other Information

  

38

 

 

 

 

 

Item 6

  

Exhibits

  

38

 

 

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, mergers and acquisitions costs, executive departure costs, restructuring charges, the GX Dispute, the GX Dispute Phase II costs, COVID-19 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

 

The novel Coronavirus, the response to which resulted in a global economic slowdown which had significant negative effects on the oil and gas industry.

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.

3


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

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)

 

 

 

June 30,

 

 

December 31,

 

 

 

 

2020

 

 

 

2019

 

 

 

(in thousands, except share amounts)

 

ASSETS

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

15,591

 

 

$

12,941

 

Restricted cash

 

 

-

 

 

 

42

 

Accounts receivable, net

 

 

69,960

 

 

 

67,059

 

Costs and estimated earnings in excess of billings on uncompleted

   contracts (CIEB)

 

 

13,030

 

 

 

13,275

 

Prepaid expenses and other current assets

 

 

6,437

 

 

 

6,500

 

Total current assets

 

 

105,018

 

 

 

99,817

 

Property, plant and equipment, net

 

 

54,163

 

 

 

60,118

 

Restricted cash

 

 

1,500

 

 

 

1,522

 

Goodwill

 

 

20,134

 

 

 

46,792

 

Intangibles, net

 

 

25,626

 

 

 

30,145

 

Right-of-use lease asset

 

 

6,175

 

 

 

6,829

 

Deferred tax and other assets

 

 

5,417

 

 

 

5,757

 

TOTAL ASSETS

 

$

218,033

 

 

$

250,980

 

LIABILITIES AND EQUITY

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

23,670

 

 

$

28,517

 

Accrued expenses

 

 

17,523

 

 

 

16,660

 

Current maturities of long-term debt

 

 

8,792

 

 

 

10,793

 

Income taxes payable

 

 

2,464

 

 

 

2,649

 

GX dispute accrual

 

 

750

 

 

 

750

 

Deferred revenue and other current liabilities

 

 

7,440

 

 

 

11,173

 

Total current liabilities

 

 

60,639

 

 

 

70,542

 

Long-term debt

 

 

106,161

 

 

 

96,934

 

Deferred revenue

 

 

764

 

 

 

855

 

Deferred tax liability

 

 

1,955

 

 

 

2,672

 

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

 

 

5,830

 

 

 

6,329

 

Other liabilities

 

 

30,440

 

 

 

26,771

 

Total liabilities

 

 

205,789

 

 

 

204,103

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

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

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

 

 

-

 

 

 

-

 

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

   20,551,153 and 19,979,284 shares issued and outstanding at

   June 30, 2020 and December 31, 2019, respectively

 

 

21

 

 

 

20

 

Treasury stock - 445,525 and 203,756 shares at June 30, 2020 and

   December 31, 2019, respectively, at cost

 

 

(3,281

)

 

 

(2,693

)

Additional paid-in capital

 

 

189,251

 

 

 

184,571

 

Accumulated deficit

 

 

(146,836

)

 

 

(115,673

)

Accumulated other comprehensive loss

 

 

(27,050

)

 

 

(19,502

)

Total stockholders' equity

 

 

12,105

 

 

 

46,723

 

Non-redeemable, non-controlling interest

 

 

139

 

 

 

154

 

Total equity

 

 

12,244

 

 

 

46,877

 

TOTAL LIABILITIES AND EQUITY

 

$

218,033

 

 

$

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

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

53,391

 

 

$

60,332

 

 

$

112,152

 

 

$

117,842

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue (excluding depreciation and amortization)

 

 

33,687

 

 

 

36,519

 

 

 

71,637

 

 

 

72,975

 

Depreciation and amortization

 

 

6,913

 

 

 

7,679

 

 

 

13,844

 

 

 

16,591

 

Impairment of goodwill

 

 

-

 

 

 

-

 

 

 

23,141

 

 

 

-

 

Change in fair value of earn-out/contingent consideration

 

 

3,916

 

 

 

1,284

 

 

 

3,916

 

 

 

1,284

 

Selling and marketing

 

 

2,207

 

 

 

2,952

 

 

 

5,019

 

 

 

6,745

 

General and administrative

 

 

9,453

 

 

 

14,458

 

 

 

23,282

 

 

 

30,928

 

Total expenses

 

 

56,176

 

 

 

62,892

 

 

 

140,839

 

 

 

128,523

 

Operating loss

 

 

(2,785

)

 

 

(2,560

)

 

 

(28,687

)

 

 

(10,681

)

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(1,325

)

 

 

(1,269

)

 

 

(2,853

)

 

 

(2,507

)

Other income (expense), net

 

 

(13

)

 

 

(93

)

 

 

(334

)

 

 

(21

)

Loss before income taxes

 

 

(4,123

)

 

 

(3,922

)

 

 

(31,874

)

 

 

(13,209

)

Income tax benefit (expense)

 

 

(129

)

 

 

(2,204

)

 

 

851

 

 

 

(4,870

)

Net loss

 

 

(4,252

)

 

 

(6,126

)

 

 

(31,023

)

 

 

(18,079

)

Less: Net loss attributable to

   non-redeemable, non-controlling interest

 

 

70

 

 

 

30

 

 

 

140

 

 

 

60

 

Net loss attributable to RigNet, Inc.

   stockholders

 

$

(4,322

)

 

$

(6,156

)

 

$

(31,163

)

 

$

(18,139

)

COMPREHENSIVE LOSS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(4,252

)

 

$

(6,126

)

 

$

(31,023

)

 

$

(18,079

)

Foreign currency translation

 

 

(391

)

 

 

178

 

 

 

(7,548

)

 

 

336

 

Comprehensive loss

 

 

(4,643

)

 

 

(5,948

)

 

 

(38,571

)

 

 

(17,743

)

Less: Comprehensive income attributable to

   non-controlling interest

 

 

70

 

 

 

30

 

 

 

140

 

 

 

60

 

Comprehensive loss attributable to

   RigNet, Inc. stockholders

 

$

(4,713

)

 

$

(5,978

)

 

$

(38,711

)

 

$

(17,803

)

LOSS PER SHARE - BASIC AND DILUTED

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to RigNet, Inc. common

   stockholders

 

$

(4,322

)

 

$

(6,156

)

 

$

(31,163

)

 

$

(18,139

)

Net loss per share attributable to RigNet, Inc.

   common stockholders, basic

 

$

(0.21

)

 

$

(0.32

)

 

$

(1.54

)

 

$

(0.95

)

Net loss per share attributable to RigNet, Inc.

   common stockholders, diluted

 

$

(0.21

)

 

$

(0.32

)

 

$

(1.54

)

 

$

(0.95

)

Weighted average shares outstanding, basic

 

 

20,510

 

 

 

19,082

 

 

 

20,295

 

 

 

19,016

 

Weighted average shares outstanding, diluted

 

 

20,510

 

 

 

19,082

 

 

 

20,295

 

 

 

19,016

 

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

 

 

6


 

RIGNET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

 

(in thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(31,023

)

 

$

(18,079

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

13,844

 

 

 

16,591

 

Impairment of goodwill

 

 

23,141

 

 

 

-

 

Stock-based compensation

 

 

4,686

 

 

 

5,628

 

Amortization of deferred financing costs

 

 

189

 

 

 

153

 

Deferred taxes

 

 

(624

)

 

 

4,838

 

Change in fair value of earn-out/contingent consideration

 

 

3,916

 

 

 

1,284

 

Accretion of discount of contingent consideration payable for acquisitions

 

 

266

 

 

 

183

 

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

 

 

116

 

 

 

11

 

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

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(4,078

)

 

 

(488

)

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

 

 

(199

)

 

 

(1,644

)

Prepaid expenses and other assets

 

 

73

 

 

 

(6

)

Right-of-use lease asset

 

 

654

 

 

 

-

 

Accounts payable

 

 

(2,027

)

 

 

7,564

 

Accrued expenses

 

 

1,195

 

 

 

(1,574

)

GX Dispute payment

 

 

-

 

 

 

(45,000

)

Deferred revenue

 

 

(7,459

)

 

 

1,334

 

Right-of-use lease liability

 

 

(779

)

 

 

-

 

Other liabilities

 

 

5,138

 

 

 

(2,052

)

Net cash provided by (used in) operating activities

 

 

7,029

 

 

 

(31,257

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(8,597

)

 

 

(11,868

)

Proceeds from sales of property, plant and equipment

 

 

26

 

 

 

112

 

Net cash used in investing activities

 

 

(8,571

)

 

 

(11,756

)

 

 

 

 

 

 

 

 

 

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

 

 

(594

)

 

 

(1,406

)

Subsidiary distributions to non-controlling interest

 

 

(155

)

 

 

(135

)

Proceeds from borrowings

 

 

6,750

 

 

 

40,000

 

Proceeds from Paycheck Protection Program Loan

 

 

6,298

 

 

 

-

 

Repayments of long-term debt

 

 

(8,354

)

 

 

(6,083

)

Payment of financing fees

 

 

(485

)

 

 

(486

)

Net cash provided by financing activities

 

 

3,461

 

 

 

31,894

 

Net change in cash and cash equivalents

 

 

1,919

 

 

 

(11,119

)

 

 

 

 

 

 

 

 

 

Cash and cash equivalents including restricted cash:

 

 

 

 

 

 

 

 

Balance, January 1,

 

 

14,505

 

 

 

23,296

 

Changes in foreign currency translation

 

 

667

 

 

 

265

 

Balance, June 30,

 

$

17,091

 

 

$

12,442

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures:

 

 

 

 

 

 

 

 

Income taxes paid

 

$

1,698

 

 

$

3,371

 

Interest paid

 

 

2,369

 

 

 

2,075

 

Property, plant and equipment acquired under finance leases

 

 

-

 

 

 

446

 

Non-cash investing - capital expenditures accrued

 

 

663

 

 

 

1,917

 

Non-cash investing and financing - issuance of common stock for the Intelie earn-out

 

 

-

 

 

 

3,000

 

Right-of-use operating lease entered into

 

 

121

 

 

 

-

 

 

 

 

June 30,

 

 

June 30,

 

 

 

 

2020

 

 

 

2019

 

Cash and cash equivalents

 

$

15,591

 

 

$

10,879

 

Restricted cash - current portion

 

 

-

 

 

 

41

 

Restricted cash - long-term portion

 

 

1,500

 

 

 

1,522

 

Cash and cash equivalents including restricted cash

 

$

17,091

 

 

$

12,442

 

 

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, March 31, 2019

 

 

19,711

 

 

$

20

 

 

 

198

 

 

$

(2,677

)

 

$

177,404

 

 

$

(108,500

)

 

$

(19,096

)

 

$

47,151

 

 

$

(45

)

 

$

47,106

 

Issuance of common stock upon the

     exercise of stock options

 

 

1

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3

 

 

 

-

 

 

 

-

 

 

 

3

 

 

 

-

 

 

 

3

 

Issuance of common stock upon the

     vesting of Restricted Stock Units,

     net of share cancellations

 

 

49

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of common stock for the

     Intelie earn-out

 

 

208

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,000

 

 

 

-

 

 

 

-

 

 

 

3,000

 

 

 

-

 

 

 

3,000

 

Stock withheld to cover employee taxes on stock-based compensation

 

 

-

 

 

 

-

 

 

 

3

 

 

 

1

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1

 

 

 

-

 

 

 

1

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,170

 

 

 

-

 

 

 

-

 

 

 

1,170

 

 

 

-

 

 

 

1,170

 

Foreign currency translation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

178

 

 

 

178