PR Newswire | Nov 5, 2020 04:06PM EST

11/05 15:05 CST

RigNet Announces Third Quarter 2020 Earnings Results HOUSTON, Nov. 5, 2020

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 andPresentationssection. 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 June 30, September September September 30, 30, 30, 30, 2020 2020 2019 2020 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 29,995 33,687 35,662 101,632 108,637depreciation and amortization)

Depreciation and amortization 6,375 6,913 7,172 20,219 23,763

Impairment of goodwill and intangible 3,836 - - 26,977 -assets

Change in fair value of earn-out/ - 3,916 - 3,916 1,284contingent consideration

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. $ (5,537) $ (4,322) $ (494) $ (36,700) $ (18,633) common stockholders

Net loss per share attributable to $ (0.25) $ (0.21) $ (0.02) $ (1.69) $ (0.94) RigNet, Inc. common stockholders,basic

Net loss per share attributable to $ (0.25) $ (0.21) $ (0.02) $ (1.69) $ (0.94) RigNet, Inc. common stockholders,diluted

Weighted average shares outstanding, 22,573 20,510 19,970 21,776 19,777basic

Weighted average shares outstanding, 22,573 20,510 19,970 21,776 19,777diluted

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 June 30, September September September 30, 30, 30, 30, 2020 2020 2019 2020 2019

(in thousands)

Reconciliation ofNet Loss toAdjusted 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 6,375 6,913 7,172 20,219 23,763amortization

Impairment ofgoodwill and 3,836 - - 26,977 -intangible assets

(Gain) loss onsales ofproperty, plant 79 (166) 8 195 19and equipment,net ofretirements

Stock-based 502 832 1,504 5,188 7,132compensation

Restructuring - - 158 - 731costs

Change in fairvalue of earn-out/contingent - 3,916 - 3,916 1,284

consideration

Executive - 255 - 553 -departure costs

Mergers andAcquisitions 67 78 76 213 486costs

COVID-19 Costs 134 671 - 805 -

GX Dispute Phase - - (420) - 3,946II costs

Income tax 695 129 998 (156) 5,868expense (benefit)

Adjusted EBITDA(non-GAAP $ 7,536 $ 9,701 $ 11,010 $ 25,588 $ 29,171measure)

RIGNET, INC.

Segment Information

(Unaudited)

Three Months Ended Nine Months Ended

September June 30, September September September 30, 30, 30, 30, 2020 2020 2019 2020 2019

(in thousands)

Managed CommunicationsServices

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 4,510 4,843 5,037 14,012 16,360amortization

Impairment of goodwill - - - 21,755 -

Selling, general and 2,454 2,436 3,303 7,697 10,446administrative

Operating income (loss) $ 5,452 $ 3,872 $ 9,559 $ (5,503) $ 22,627

Applications andInternet-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 1,290 1,154 1,218 3,626 3,675amortization

Impairment of intangible 3,836 - - 3,836 -assets

Selling, general and 1,332 1,563 1,599 4,515 2,999administrative

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 157 157 155 478 1,456amortization

Impairment of goodwill - - - 1,386 -

Selling, general and 374 302 464 1,080 2,158administrative

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 excessof billings on uncompleted 14,421 13,275

contracts (CIEB)

Prepaid expenses and other current 5,141 6,500assets

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 19,121 11,173liabilities

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 5,764 6,329portion

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 atSeptember 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 21 20issued and outstanding at

September 30, 2020 and December 31,2019, respectively

Treasury stock - 448,586 and 203,756shares at September 30, 2020 and (3,285) (2,693) December 31, 2019, respectively, atcost

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 providedby 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 3,916 1,284consideration

Accretion of discount of contingent consideration 468 262payable for acquisitions

(Gain) loss on sales of property, plant and equipment, 195 19net of retirements

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

Accounts receivable, net 7,501 4,995

Costs and estimated earnings in excess of billings on (243) (4,536)uncompleted contracts (CIEB)

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 1 4options and the vesting of restricted stock

Stock withheld to cover employee taxes on stock-based (598) (1,412)compensation

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 2nd 1st 4th 3rd Quarter Quarter Quarter Quarter 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 $ 12,352 $ 15,856 $ 22,380 $ 26,178 $ 35,855thousands)

(1)Includes jack up, semi-submersible and drillship rigs

Includes U.S. and International land sites, completion sites, man-camps, (2)remote offices, and supply bases and offshore-related supply bases, shore offices, tender rigs and platform rigs

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SOURCE RigNet, Inc.