RNET - RigNet Announces Second Quarter 2020 Earnings Results

August, 06 2020 04:05 PM RigNet Inc.

HOUSTON, Aug. 06, 2020 (GLOBE NEWSWIRE) -- 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 June 30, 2020.

Second quarter 2020 revenue of $53.4 million, net loss of $4.3 million or $0.21 per share
Revenue decreased by 9.1% to $53.4 million compared to prior quarter
Adjusted EBITDA increased by 16.2% to $9.7 million compared to prior quarter
Managed Communications Services (MCS) Sites served decreased 9.0% to 1,229 compared to the prior quarter
System Integration project backlog of $15.9 million

“RigNet’s team delivered strong second quarter results despite the challenging oil and gas dynamics that impacted our MCS business,” said Steven Pickett, Chief Executive Officer and President. “While total revenue declined, the team’s discipline around costs controls and continued contributions from our growing Apps & IoT business contributed to an increase in Adjusted EBITDA. During the quarter, offshore communications generally performed ahead of our expectations while onshore declined as anticipated due to reduced activity in the shale basins. Both Apps & IoT and SI continue to generate opportunities, though as we have previously discussed, we are seeing some delays in converting the opportunities into revenue as our customers’ decision-making processes have generally slowed. Looking ahead, we are focused on capitalizing on our available opportunities across all of our segments, further reducing costs, and ensuring we continue to deliver the industry-leading quality of service for which we’re known.”

Quarterly revenue was $53.4 million, a decrease of $5.4 million, or 9.1%, compared to $58.8 million in the prior quarter and a decrease of $6.9 million, or 11.5%, compared to $60.3 million in the second quarter 2019. Compared to the first quarter 2020, Apps & IoT revenue grew by $0.1 million, or 0.7%, primarily driven our value-added applications. Systems Integration (SI) revenue grew by $0.3 million, or 3.2%, primarily due to the timing of projects. The increase was offset by a decrease in Managed Communications Services (MCS) revenue by $5.8 million, or 14.4%, due to decrease in site count and lower equipment resale. Compared to the second quarter of 2019, Apps & IoT revenue grew by $0.8 million, or 10.0%, primarily due to the continued strong performance of Intelie. The increase was offset by a $7.1 million decrease in MCS revenue due to decreased site counts, rig stacking, and lower equipment sales. SI revenue decreased by $0.7 million or 6.0%, compared to the second quarter of 2019 primarily due to differences in progress on certain large projects.

Net loss attributable to common stockholders in the second quarter 2020 was $4.3 million, or $0.21 per share, compared to net loss attributable to common stockholders of $26.8 million, or $1.34 per share, in the first quarter of 2020 and net loss attributable to common stockholders of $6.2 million, or $0.32 per share, in the second quarter of 2019.

First quarter 2020 results include a non-cash goodwill impairment of $23.1 million or $1.15 per share. Excluding this charge, net loss attributable to common stockholders in the first quarter 2020 was $3.7 million of $0.18 per share.

Adjusted EBITDA, a non-GAAP measure defined and reconciled to GAAP net loss (as described below), was $9.7 million, an increase of 16.2% compared to $8.4 million in the first quarter of 2020 and a decrease of 0.8% compared to $9.8 million in the second quarter 2019.

Capital expenditures for the three months ending June 30, 2020 totaled $3.1 million compared to $3.7 million for the three months ending March 31, 2020 and $4.6 million for the quarter ending June 30, 2019. Capital expenditures for the six months ending June 30, 2020 totaled $6.8 million compared to $11.7 million for the six months ending June 30, 2019. After accounting for accrued capital expenditures, capital expenditures on a cash basis were $3.3 million and $5.3 million in the quarters ended June 30, 2020 and March 31, 2020, respectively. Capital expenditures on cash basis was $8.6 million for the six months ended June 30, 2020.

Contracting and Operational Update

In July 2020, RigNet announced a collaboration with CACI International Inc. on CACI’s Steelbox™ Secure Voice and Text App for government users. CACI’s Steelbox combines technologies from Microsoft Azure and from BlackBerry’s SecuSuite® to deliver a government cloud-hosted, FedRAMP-certified, secure mobile tenant environment. RigNet will provide telecommunications interconnectivity throughout the United States, increasing the utility and convenience to government entities.

In June 2020, Intelie achieved “co-sell ready” status through the Microsoft One Commercial Partner Program. Intelie’s real-time machine learning platform, Intelie Live, is now available in the Microsoft Azure Marketplace and optimized to run within Azure. Microsoft’s co-sell ready status allows RigNet to work together with Microsoft’s sales organization, as well as other Microsoft partners, to rapidly expand the reach and deployment of Intelie Live running on Azure. Customers are able to deploy Intelie Live on Azure or in a multi-cloud platform and with an edge deployment model.

MCS Site count in the second quarter 2020 decreased by 9.0% to 1,229 compared to 1,351 in the first quarter 2020 and decreased by 11.2% compared to 1,384 in the second quarter 2019.

Project backlog (using percentage of completion accounting) was $15.9 million in the second quarter 2020 and $22.4 million in the first quarter 2020 and was $37.1 million in the second quarter 2019.

Additional Detail

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. As of June 30, 2020, the Consolidated Leverage Ratio was 3.03 and Consolidated Fixed Charge Coverage Ratio was 2.32. In the first quarter 2020, the Company recorded a non-cash goodwill impairment charge of $23.1 million as result of the carrying amounts in two of our reporting units were in excess of their fair value as a result of the effect of COVID-19 and unprecedented oil and gas prices on the Company’s internal forecast. The charge primarily related to goodwill in MCS of $21.8 million and Systems Integration of $1.4 million. Additionally, in the first quarter 2020, the company recorded $0.1 million in merger and acquisition costs and $0.3 million in executive departure costs. In the quarter ended June 30, 2019, the Company recorded $2.2 million in GX dispute Phase II costs and $1.3 million increase in the fair value of earn-out/contingent consideration related to Intelie.

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, August 7, 2020, to discuss RigNet’s second quarter 2020 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 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 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 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 11^th, 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.

Media / Investor Relations Contact

Lee M. Ahlstrom, SVP & CFO

Tel: +1 (281) 674-0699

RigNet, Inc.

investor.relations@rig.net

RIGNET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)













Three Months Ended

Six Months Ended


June 30, 2020

March 31, 2020

June 30, 2019

June 30, 2020

June 30, 2019


(in thousands, except per share amounts)
Unaudited Consolidated Statements of










Comprehensive Loss Data:










Revenue

$
53,391


$
58,761


$
60,332


$
112,152


$
117,842

Expenses:










Cost of revenue (excluding depreciation and amortization)


33,687



37,950



36,519



71,637



72,975

Depreciation and amortization


6,913



6,931



7,679



13,844



16,591

Impairment of goodwill


-



23,141



-



23,141



-

Change in fair value of earn-out/contingent consideration


3,916



-



1,284



3,916



1,284

Selling and marketing


2,207



2,812



2,952



5,019



6,745

General and administrative


9,453



13,829



14,458



23,282



30,928

Total expenses


56,176



84,663



62,892



140,839



128,523

Operating loss


(2,785
)


(25,902
)


(2,560
)


(28,687
)


(10,681
)
Other expense, net


(1,338
)


(1,849
)


(1,362
)


(3,187
)


(2,528
)
Loss before income taxes


(4,123
)


(27,751
)


(3,922
)


(31,874
)


(13,209
)
Income tax (expense) benefit


(129
)


980



(2,204
)


851



(4,870
)
Net loss

$
(4,252
)

$
(26,771
)

$
(6,126
)

$
(31,023
)

$
(18,079
)











Net Loss Per Share - Basic and Diluted










Net loss attributable to RigNet, Inc. common stockholders

$
(4,322
)

$
(26,841
)

$
(6,156
)

$
(31,163
)

$
(18,139
)
Net loss per share attributable to RigNet, Inc. common stockholders, basic

$
(0.21
)

$
(1.34
)

$
(0.32
)

$
(1.54
)

$
(0.95
)
Net loss per share attributable to RigNet, Inc. common stockholders, diluted

$
(0.21
)

$
(1.34
)

$
(0.32
)

$
(1.54
)

$
(0.95
)
Weighted average shares outstanding, basic


20,510



20,081



19,082



20,295



19,016

Weighted average shares outstanding, diluted


20,510



20,081



19,082



20,295



19,016












Unaudited Non-GAAP Data:










Adjusted EBITDA

$
9,701


$
8,351


$
9,775


$
18,052


$
18,161












RIGNET, INC.
Reconciliation of Net Loss to Adjusted EBITDA
(Unaudited)













Three Months Ended

Six Months Ended


June 30, 2020

March 31, 2020

June 30, 2019

June 30, 2020

June 30, 2019


(in thousands)
Reconciliation of Net Loss to Adjusted EBITDA:










Net loss

$
(4,252
)

$
(26,771
)

$
(6,126
)

$
(31,023
)

$
(18,079
)
Interest expense


1,325



1,528



1,269



2,853



2,507

Depreciation and amortization


6,913



6,931



7,679



13,844



16,591

Impairment of goodwill


-



23,141



-



23,141



-

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


(166
)


282



18



116



11

Stock-based compensation


832



3,854



1,170



4,686



5,628

Restructuring costs


-



-



-



-



573

Change in fair value of earn-out/contingent consideration


3,916



-



1,284



3,916



1,284

Executive departure costs


255



298



-



553



-

Mergers and Acquisitions costs


78



68



60



146



410

COVID-19 Costs


671



-



-



671



-

GX dispute Phase II costs


-



-



2,217



-



4,366

Income tax expense (benefit)


129



(980
)


2,204



(851
)


4,870

Adjusted EBITDA (non-GAAP measure)

$
9,701


$
8,351


$
9,775


$
18,052


$
18,161












RIGNET, INC.
Segment Information
(Unaudited)
























Three Months Ended

Six Months Ended


June 30, 2020

March 31, 2020

June 30, 2019

June 30, 2020

June 30, 2019


(in thousands)
Managed Communications Services










Revenue

$
34,136

$
39,896


$
41,205

$
74,032


$
83,538
Cost of revenue


22,985


25,502



25,019


48,487



52,004
Depreciation and amortization


4,843


4,659



5,059


9,502



11,323
Impairment of goodwill


-


21,755



-


21,755



-
Selling, general and administrative


2,436


2,807



3,346


5,243



7,143
Operating income (loss)

$
3,872

$
(14,827
)

$
7,781

$
(10,955
)

$
13,068











Applications and Internet-of-Things










Revenue

$
8,805

$
8,743


$
8,005

$
17,548


$
16,020
Cost of revenue


3,221


4,561



4,387


7,782



8,884
Depreciation and amortization


1,154


1,182



1,226


2,336



2,457
Selling, general and administrative


1,563


1,620



835


3,183



1,400
Operating income

$
2,867

$
1,380


$
1,557

$
4,247


$
3,279











Systems Integration










Revenue

$
10,450

$
10,122


$
11,122

$
20,572


$
18,284
Cost of revenue


7,481


7,887



7,113


15,368



12,087
Depreciation and amortization


157


164



639


321



1,301
Impairment of goodwill


-


1,386



-


1,386



-
Selling, general and administrative


302


404



570


706



1,694
Operating income

$
2,510

$
281


$
2,800

$
2,791


$
3,202











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

RIGNET, INC.
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





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

RIGNET, INC.
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

RIGNET, INC.
Selected Operational Data
MCS Site Count
(Unaudited)













2nd Quarter

1st Quarter

4th Quarter

3rd Quarter

2nd Quarter


2020

2020

2019

2019

2019
Selected Operational Data:










Offshore drilling rigs (1)


193


196


185


184


182
Offshore Production


337


386


385


384


375
Maritime


161


177


171


184


183
Other sites (2)


538


592


599


634


644
Total


1,229


1,351


1,340


1,386


1,384
Project Backlog (in thousands)

$
15,856

$
22,380

$
26,178

$
35,855

$
37,116






















(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

Company Name:	RigNet Inc.
Stock Symbol:	RNET
Market:	NASDAQ
Website:	rig.net

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