Market Overview

RigNet Announces Third Quarter 2020 Earnings Results

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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.)

 

Cision View original content to download multimedia:http://www.prnewswire.com/news-releases/rignet-announces-third-quarter-2020-earnings-results-301167412.html

SOURCE RigNet, Inc.

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