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RigNet Inc$1.02($.01)(.97%)

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 RigNet Announces First Quarter 2019 Earnings Results
   Monday, May 06, 2019 3:05:00 PM ET

HOUSTON, May 06, 2019 (GLOBE NEWSWIRE) -- RigNet, Inc. (NASDAQ: RNET, the “Company”), the leading provider of intelligent networking solutions and specialized applications, today reported results for the quarter ended March 31, 2019.

  • Increased quarterly revenue 7% compared to the first quarter 2018 to $57.5 million
  • Net loss of $12.0 million or $0.63 per share; compared to first quarter 2018 net loss of $5.6 million or $0.31 per share
  • Increased quarterly Adjusted EBITDA by 13.0% year-over-year to $8.4 million
  • Increased Managed Communications Services (MCS) Sites served by 13.4% year-over-year to 1,360
  • Project backlog of $43.1 million

“Once again, RigNet delivered solid operating results, growing total revenue in the first quarter of 2019 by 7% compared to the first quarter of 2018.  Revenue increased in each of our reporting segments and improved Adjusted EBITDA 13.0 % year-over-year,” said Steven Pickett, Chief Executive Officer and President. “We continue to see increasing data intensity across our customer base, creating more sales opportunities for RigNet’s highly differentiated and bundled solutions.  The intersection of managed communications, machine learning, and cybersecurity is leading customers to think differently about their digital transformation efforts and they are choosing to partner with RigNet because of the dependency between network performance and the performance of critical business applications.”

Quarterly revenue was $57.5 million, an increase of $3.7 million, or 6.8%, compared to $53.8 million in the first quarter 2018, and a decrease of $2.7 million, or 4.5%, compared to $60.2 million in the prior quarter. Compared to the first quarter 2018, revenue grew in all segments: a $2.7 million, or 50.2%, increase in Apps & IoT revenue, a $0.7 million, or 11.1%, increase in Systems Integration (SI) revenue, and a $0.3 million, or 0.7%, increase in Managed Communications Services (MCS) revenue. The revenue decrease compared to the prior quarter reflects a $3.9 million decrease in SI revenue reflective of the percentage-of-completion nature of the SI business, and a $0.5 million decrease in MCS revenue, partially offset by a $1.7 million increase in Apps & IoT.  Additionally there were two fewer days in the first quarter 2019 compared to the fourth quarter 2018.

Net loss attributable to common stockholders in the first quarter 2019 was $12.0 million, or $0.63 per share, compared to net loss attributable to common stockholders of $5.6 million, or $0.31 per share, in the first quarter 2018 and net loss attributable to common stockholders of $49.7 million, or $2.62 per share, in the fourth quarter 2018.   Excluding the previously disclosed $50.6 million non-cash GX charge, net income attributable to common stockholders in the fourth quarter of 2018 was $0.9 million, or $0.05 per share.  The GX dispute accrual could be subject to reduction under our Phase II counterclaims.  Net loss in the first quarter 2019 was adversely impacted compared to fourth quarter 2018 by increased stock-based compensation, GX dispute Phase II costs, depreciation, and restructuring costs, which are added back and reconciled to Adjusted EBITDA below.

Adjusted EBITDA, a non-GAAP measure defined and reconciled to its most comparable GAAP measure below, was $8.4 million, a 13.0% increase compared to $7.4 million in the first quarter 2018 and a 20.5% decrease compared to $10.5 million in the prior quarter.

Net loss and Adjusted EBITDA in the first quarter of 2019 compared to the prior quarter were adversely impacted by decreases in SI, due to the variable nature of that business. Additionally there was the effect of two fewer days in the first quarter 2019 compared to the fourth quarter 2018. Net loss was also adversely impacted by increased stock-based compensation, GX dispute Phase II costs, depreciation, and restructuring costs, which are added back and reconciled to Adjusted EBITDA below.

Capital expenditures for the three months ending March 31, 2019 totaled $7.1 million compared to $6.6 million for the three months ending March 31, 2018 and $10.8 million for the quarter ending December 31, 2018.

Contracting and Operational Update

During the first quarter of 2019, RigNet won a three-year contract with a large international offshore drilling contractor to provide MCS. This contract, previously disclosed, is an exclusive relationship for the contractor’s currently operating rigs, as well as any rigs which secure new drilling contracts during the exclusivity period.  RigNet also secured long-term contracts on two Floating, Production, Storage, and Offloading (FPSO) vessels in Angola that are expected to commence in the third quarter of 2019.  In the U.S. Gulf of Mexico, the company has completed 63% of the total coverage area in the buildout of our 4G LTE and 5G-enabled network.  The company expects to complete construction on the network, already carrying live traffic, in the second quarter of 2019.

MCS Site count in the first quarter 2019 increased by 13.4% to 1,360 from 1,199 in the first quarter 2018, largely due to increases in production sites and other sites, which are primarily related to onshore drilling. MCS Site count increased 2.8% from 1,323 in the prior quarter, with increases in offshore rigs, production, and other sites, offset by the loss of one maritime site.

In the Apps and IoT segment, RigNet signed its inaugural contract to provide managed IT services as a service (ITaaS).  The three-year contract with another large international drilling contractor is the first solution offering of its kind for RigNet, stemming from the convergence of complex, real-time data acquisition and analysis and the need for network optimization.  The company also signed an agreement, previously disclosed, with a supermajor to provide Intelie™’s real-time workforce tracking solution for a large facility currently under construction.

Project backlog (using percentage of completion accounting) was $43.1 million compared to $23.5 million in the first quarter 2018 and $45.5 million in the prior quarter. The company continues to see significant global project activity related to increasing project capital expenditures across the energy value chain.

Additional Detail

In the first quarter 2019, the Company recorded $2.1 million in GX dispute Phase II costs. The Company is adding back these Phase II costs to our non-GAAP measure Adjusted EBITDA because of the extraordinary actions precipitated by the Phase I finding.  In addition, the company recorded $0.4 million in acquisition costs and $0.6 million in restructuring costs. In the fourth quarter of 2018, the Company recorded a $50.6 million charge, net of approximately $0.2 million of prior accruals, for the GX dispute as an accrued litigation reserve.  In addition, the company recorded $0.2 million of executive departure costs, and $0.2 million of acquisition costs, as well as a net $1.5 million increase in the fair value of earn-outs / contingent consideration which is composed of a $1.8 million increase in fair value related to Intelie partially offset by a $0.3 million decrease related to Cyphre, all in the fourth quarter of 2018. The change in fair value of both the Intelie and Cyphre earn-outs / contingent consideration and the GX dispute accrued litigation reserve did not impact the Company’s cash position in the fourth quarter 2018. The Intelie earn-out will ultimately be settled with stock. In the quarter ended March 31, 2018, the Company recorded $0.8 million in acquisition costs and $0.2 million in executive departure costs. All items listed above are added back to net loss in our non-GAAP measure Adjusted EBITDA. 

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 Tuesday, May 7, 2019, to discuss RigNet’s first quarter 2019 results.  The call may be accessed live over the telephone by dialing +1 (877) 845-0777, or, for international callers, +1 (760) 298-5090.  Interested parties may also listen to a simultaneous webcast of the conference call by logging onto RigNet’s website at 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, optimized industry solutions, 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, IoT 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.netRigNet 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, ability to reduce the interim GX dispute award through counterclaims, ability to make payments for any GX dispute final award, growth prospects, and the ultimate payout amount of any earnout / contingent consideration 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 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 recent 10-K filing for the year ended December 31, 2018, filed Friday March 15th, 2019, 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, acquisition costs, executive departure costs, restructuring charges, the GX dispute, the GX dispute Phase II costs and non-recurring items.

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

Media / Investor Relations Contact 
Lee M. Ahlstrom, SVP & CFOTel:  +1 (281) 674-0699

 Three Months Ended
 March 31,
 December 31,
 March 31,
 (in thousands, except per share amounts)
Revenue$57,510  $60,244  $53,833 
Cost of revenue (excluding depreciation and amortization)36,456  35,942  33,681 
Depreciation and amortization8,912  8,398  7,987 
Change in fair value of earn-out/contingent consideration-  1,493  22 
GX dispute-  50,612  - 
Selling and marketing3,793  2,978  2,949 
General and administrative16,470  12,095  13,664 
Total expenses65,631  111,518  58,303 
Operating loss(8,121) (51,274) (4,470)
Other expense, net(1,166) (1,152) (453)
Loss before income taxes(9,287) (52,426) (4,923)
Income tax benefit (expense)(2,666) 2,735  (603)
Net loss$(11,953) $(49,691) $(5,526)
Loss Per Share - Basic and Diluted        
Net loss attributable to RigNet, Inc. common stockholders$(11,983) $(49,721) $(5,556)
Net loss per share attributable to RigNet, Inc. common stockholders, basic$(0.63) $(2.62) $(0.31)
Net loss per share attributable to RigNet, Inc. common stockholders, diluted$(0.63) $(2.62) $(0.31)
Weighted average shares outstanding, basic18,949  18,948  18,146 
Weighted average shares outstanding, diluted18,949  18,948  18,146 
Unaudited Non-GAAP Data:        
Adjusted EBITDA$8,386  $10,546  $7,419 

Reconciliation of Net Loss to Adjusted EBITDA
 Three Months Ended
 March 31,

 December 31,

 March 31,

 (in thousands)
Reconciliation of Net Loss to Adjusted EBITDA:           
Net loss$(11,953) $(49,691) $(5,526)
Interest expense 1,238   1,196   959 
Depreciation and amortization 8,912   8,398   7,987 
(Gain) loss on sales of property, plant and equipment, net of retirements (7)  297   (53)
Stock-based compensation 4,458   344   2,445 
Restructuring costs 573   178   - 
Change in fair value of earn-out/contingent consideration -   1,493   22 
Executive departure costs -   245   157 
Acquisition costs 350   209   825 
GX dispute -   50,612   - 
GX dispute Phase II costs 2,149   -   - 
Income tax expense (benefit) 2,666   (2,735)  603 
Adjusted EBITDA (non-GAAP measure)$8,386  $10,546  $7,419 

Segment Information
 Three Months Ended
 March 31,
 December 31,
 March 31,
 (in thousands)
Managed Communication Services     
Revenue$42,333 $42,869 $42,050
Cost of revenue26,985 26,120 25,745
Depreciation and amortization6,264 5,746 5,726
Selling, general and administrative3,797 3,431 4,215
Operating income$5,287 $7,572 $6,364
Applications and Internet-of-Things     
Revenue$8,015 $6,338 $5,336
Cost of revenue4,497 3,459 3,085
Depreciation and amortization1,231 1,226 847
Selling, general and administrative565 657 354
Operating income$1,722 $996 $1,050
Systems Integration      
Revenue$7,162 $11,037 $6,447
Cost of revenue4,974 6,364 4,851
Depreciation and amortization662 589 652
Selling, general and administrative1,124 438 323
Operating income$402 $3,646 $621
NOTE:  Consolidated balances include the segments above along with corporate activities and intercompany eliminations.

 March 31,
 December 31,
 (in thousands, except share amounts)
Current assets:       
Cash and cash equivalents$18,660  $21,711 
Restricted cash 42   41 
Accounts receivable, net 74,115   67,450 
Costs and estimated earnings in excess of billings on uncompleted contracts (CIEB) 5,710   7,138 
Prepaid expenses and other current assets 7,180   6,767 
Total current assets  105,707     103,107  
Property, plant and equipment, net 63,889   63,585 
Restricted cash 1,499   1,544 
Goodwill 46,830   46,631 
Intangibles, net 31,495   33,733 
Right-of-use lease asset 4,588   - 
Deferred tax and other assets 7,211   10,325 
TOTAL ASSETS$ 261,219   $ 258,925  
Current liabilities:       
Accounts payable$26,922  $20,568 
Accrued expenses 16,015   16,374 
Current maturities of long-term debt 10,809   4,942 
Income taxes payable 2,680   2,431 
GX dispute accrual 50,765   50,765 
Deferred revenue and other current liabilities 9,724   5,863 
Total current liabilities  116,915     100,943  
Long-term debt 64,734   72,085 
Deferred revenue 272   318 
Deferred tax liability 619   652 
Right-of-use lease liability - long-term portion 5,789   - 
Other liabilities 25,784   28,943 
Total liabilities  214,113     202,941  
Stockholders' equity       
Preferred stock - $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding at March 31, 2019 or December 31, 2018 -   - 
Common stock - $0.001 par value; 190,000,000 shares authorized; 19,711,075 and 19,464,847 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively 20   19 
Treasury stock - 198,199 and 91,567 shares at March 31, 2019 and December 31, 2018, respectively, at cost (2,677)  (1,270)
Additional paid-in capital 177,404   172,946 
Accumulated deficit (108,500)  (96,517)
Accumulated other comprehensive loss (19,096)  (19,254)
Total stockholders' equity  47,151     55,924  
Non-redeemable, non-controlling interest (45)  60 
Total equity  47,106     55,984  
TOTAL LIABILITIES AND EQUITY$ 261,219   $ 258,925  

 Three Months Ended March 31,
 2019 2018
 (in thousands)
Cash flows from operating activities:      
Net loss$(11,953) $(5,526)
Adjustments to reconcile net loss to net cash provided by operations:     
Depreciation and amortization8,912  7,987 
Stock-based compensation4,458  2,445 
Amortization of deferred financing costs61  51 
Deferred taxes2,469  449 
Change in fair value of earn-out/contingent consideration-  22 
Accretion of discount of contingent consideration payable for acquisitions94  162 
Gain on sales of property, plant and equipment, net of retirements (7)  (53)
Changes in operating assets and liabilities, net of effect of acquisition:     
Accounts receivable, net (6,777)  (6,255)
Costs and estimated earnings in excess of billings on uncompleted contracts (CIEB)1,439  520 
Prepaid expenses and other assets85   (1,012)
Accounts payable4,058   (999)
Accrued expenses (38)  (2,613)
Deferred revenue3,074  1,905 
Other liabilities (1,227) 425 
Net cash provided by (used in) operating activities 4,648     (2,492)
Cash flows from investing activities:     
Acquisitions (net of cash acquired)-   (3,202)
Capital expenditures (4,814)  (5,099)
Proceeds from sales of property, plant and equipment66  149 
Net cash used in investing activities  (4,748)   (8,152)
Cash flows from financing activities:     
Issuance of common stock upon the exercise of stock options and the vesting of restricted stock1  13 
Stock withheld to cover employee taxes on stock-based compensation (1,407)  (980)
Subsidiary distributions to non-controlling interest (135)  (66)
Repayments of long-term debt (1,295)  (1,286)
Payment of financing fees (250) - 
Net cash used in financing activities  (3,086)   (2,319)
Net change in cash and cash equivalents  (3,186)   (12,963)
Cash and cash equivalents including restricted cash:     
Balance, January 1,23,296  36,141 
Changes in foreign currency translation91  271 
Balance, March 31,$ 20,201   $ 23,449  

Selected Operational Data
 1st Quarter 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter
 2019 2018 2018 2018 2018
Offshore drilling rigs (1)185 184 191 190 188
Offshore Production368 347 332 320 310
Maritime180 181 187 177 176
Other sites (2)627 611 640 610 525
Total Managed Communications Services Sites1,360 1,323 1,350 1,297 1,199
Project Backlog (000s)$43,058 $45,536 $39,694 $19,630 $23,537
(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

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Source: RigNet, Inc.

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