RigNet, Inc. - FORM 8-K - EX-99 - May 28, 2014

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8-K - FORM 8-K - RigNet, Inc.d732514d8k.htm

Exhibit 99

Recast Segment Selected Financial Data for the

2014 and 2013 Quarterly Periods

RigNet, Inc. (the Company), a leading global technology solutions provider to the oil and gas industry, presents the following recast segment selected financial data for the 2014 and 2013 quarterly periods, recast based on the Company’s current reportable segments.

As part of the Company’s continuous review of its business and in connection with the acquisition of Inmarsat’s Enterprise Energy business unit in January of 2014, the Company evaluated its current core assets and operations, and organized them into segments. The company is now presenting Telecoms Systems Integration as a separate reportable segment, as this is now a greater portion of the company’s core assets and operations due to the acquisition of Inmarsat’s Enterprise Energy business unit. Certain operating segments are aggregated into one reportable segment based on similar economic characteristics. Accordingly, RigNet now considers its business to consist of three reportable segments:

 

  •   Eastern Hemisphere. The Eastern Hemisphere segment provides remote communications services for offshore drilling rigs and production facilities, as well as, energy support vessels and other remote sites. The Eastern Hemisphere segment services are primarily performed out of the Company’s Norway, United Kingdom, Qatar, and Singapore based offices for customers and rig sites located on the eastern side of the Atlantic Ocean primarily off the coasts of the United Kingdom, Norway, West Africa, around the Indian Ocean in Qatar, Saudi Arabia and India, around the Pacific Ocean near Australia, and within the South China Sea.

 

  •   Western Hemisphere. The Western Hemisphere segment provides remote communications services for offshore and onshore drilling rigs and production facilities, as well as, energy support vessels and other remote sites. The Western Hemisphere segment services are primarily performed out of the Company’s United States and Brazil based offices for onshore and offshore customers and rig sites located on the western side of the Atlantic Ocean primarily in the United States, Canada, Mexico and Brazil, and within the Gulf of Mexico.

 

  •   Telecoms Systems Integration (TSI). The TSI segment designs, assembles, installs and commissions turn-key solutions for customer telecommunications systems. TSI segment solutions are custom designed and engineered turn-key solutions based on the customer’s specifications, as well as, international industry standards and best practices. TSI projects include consultancy services, design, engineering, project management, procurement, testing, installation, commissioning and after-sales service. The TSI segment services are primarily performed out of the Company’s United Kingdom and United States based offices for customers globally.

Corporate and eliminations primarily represents unallocated corporate office activities, interest expenses, income taxes and eliminations.

Segment information has been prepared consistent with the components of the enterprise for which separate financial information is available and regularly evaluated by the chief operating decision-maker for the purpose of allocating resources and assessing performance. Selected segment information for the quarterly periods of 2014 and 2013 is presented below. Prior year information has been recast to conform to the current year presentation.

Selected Financial Data

 

     Three Months Ended  
     March 31,  
     2014  
     (in thousands)  

Eastern Hemisphere:

   

Revenue

    $ 38,022   

Cost of revenue

      18,693   
  

 

 

  

Gross Profit (non-GAAP measure)

      19,329   
  

 

 

  

Gross Profit margin

      50.8 % 

Depreciation and amortization

      2,723   

Selling, general and administrative

      2,984   
  

 

 

  

Operating income

    $ 13,622   
  

 

 

  

Adjusted EBITDA (non-GAAP measure)

    $ 16,691   
  

 

 

  

Adjusted EBITDA margin

      43.9 % 

Western Hemisphere:

   

Revenue

    $ 21,408   

Cost of revenue

      12,672   
  

 

 

  

Gross Profit (non-GAAP measure)

      8,736   
  

 

 

  

Gross Profit margin

      40.8 % 

Depreciation and amortization

      2,763   

Selling, general and administrative

      2,289   
  

 

 

  

Operating income

    $ 3,684   
  

 

 

  

Adjusted EBITDA (non-GAAP measure)

    $ 6,580   
  

 

 

  

Adjusted EBITDA margin

      30.7 % 

Telecoms Systems Integration:

   

Revenue

    $ 15,613   

Cost of revenue

      12,942   
  

 

 

  

Gross Profit (non-GAAP measure)

      2,671   
  

 

 

  

Gross Profit margin

      17.1 % 

Depreciation and amortization

      1,055   

Selling, general and administrative

      653   
  

 

 

  

Operating income

    $ 963   
  

 

 

  

Adjusted EBITDA (non-GAAP measure)

    $ 2,011   
  

 

 

  

Adjusted EBITDA margin

      12.9 % 

Corp/Eliminations

   

Revenue

    $ —     

Cost of revenue

      2,214   
  

 

 

  

Gross Profit (non-GAAP measure)

      (2,214 ) 
  

 

 

  

Gross Profit margin

   

Depreciation and amortization

      256   

Selling, general and administrative

      10,446   
  

 

 

  

Operating income

    $ (12,916 ) 
  

 

 

  

Adjusted EBITDA (non-GAAP measure)

    $ (9,074 ) 
  

 

 

  

Consolidated

   

Revenue

    $ 75,043   

Cost of revenue

      46,521   
  

 

 

  

Gross Profit (non-GAAP measure)

      28,522   
  

 

 

  

Gross Profit margin

      38.0 % 

Depreciation and amortization

      6,797   

Selling, general and administrative

      16,372   
  

 

 

  

Operating income

    $ 5,353   
  

 

 

  

Adjusted EBITDA (non-GAAP measure)

    $ 16,208   
  

 

 

  
     21.6 % 

Includes acquired Inmarsat’s Enterprise Energy business unit operations beginning February 1, 2014

     Three Months Ended     Year Ended  
     March 31,     June 30,     September 30,     December 31,     December 31,  
     2013     2013     2013     2013     2013  
           (in thousands)                    

Eastern Hemisphere:

           

Revenue

    $ 28,615      $ 31,185      $ 33,285      $ 35,902      $ 128,987   

Cost of revenue

      13,199        13,607        15,081        16,939        58,826   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Gross Profit (non-GAAP measure)

      15,416        17,578        18,204        18,963        70,161   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Gross Profit margin

      53.9 %      56.4 %      54.7 %      52.8 %      54.4 % 

Depreciation and amortization

      1,943        2,122        2,219        2,417        8,701   

Selling, general and administrative

      3,523        4,614        2,960        3,851        14,948   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Operating income

    $ 9,950      $ 10,842      $ 13,025      $ 12,695      $ 46,512   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted EBITDA (non-GAAP measure)

    $ 12,633      $ 13,446      $ 14,817      $ 15,074      $ 55,970   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted EBITDA margin

      44.1 %      43.1 %      44.5 %      42.0 %      43.4 % 

Western Hemisphere:

           

Revenue

    $ 12,415      $ 13,141      $ 13,884      $ 14,781      $ 54,221   

Cost of revenue

      5,281        6,149        6,734        6,898        25,062   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Gross Profit (non-GAAP measure)

      7,134        6,992        7,150        7,883        29,159   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Gross Profit margin

      57.5 %      53.2 %      51.5 %      53.3 %      53.8 % 

Depreciation and amortization

      1,794        1,848        1,924        1,583        7,149   

Selling, general and administrative

      1,677        2,090        2,000        2,080        7,847   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Operating income

    $ 3,663      $ 3,054      $ 3,226      $ 4,220      $ 14,163   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted EBITDA (non-GAAP measure)

    $ 5,417      $ 4,855      $ 5,142      $ 5,545      $ 20,959   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted EBITDA margin

      43.6 %      36.9 %      37.0 %      37.5 %      38.7 % 

Telecoms Systems Integration:

           

Revenue

    $ 11,788      $ 7,003      $ 9,687      $ 9,024      $ 37,502   

Cost of revenue

      9,331        4,703        8,180        7,355        29,569   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Gross Profit (non-GAAP measure)

      2,457        2,300        1,507        1,669        7,933   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Gross Profit margin

      20.8 %      32.8 %      15.6 %      18.5 %      21.2 % 

Depreciation and amortization

      1,085        1,075        1,088        1,121        4,369   

Selling, general and administrative

      130        284        306        337        1,057   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Operating income

    $ 1,242      $ 941      $ 113      $ 211      $ 2,507   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted EBITDA (non-GAAP measure)

    $ 2,327      $ 2,016      $ 1,201      $ 1,337      $ 6,881   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted EBITDA margin

      19.7 %      28.8 %      12.4 %      14.8 %      18.3 % 

Corp/Eliminations

           

Revenue

    $ —        $ —        $ —        $ —        $ —     

Cost of revenue

      1,311        1,468        1,145        1,500        5,424   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Gross Profit (non-GAAP measure)

      (1,311 )      (1,468 )      (1,145 )      (1,500 )      (5,424 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Gross Profit margin

           

Depreciation and amortization

      147        204        219        260        830   

Selling, general and administrative

      7,217        5,571        8,707        7,208        28,703   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Operating income

    $ (8,675 )    $ (7,243 )    $ (10,071 )    $ (8,968 )    $ (34,957 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted EBITDA (non-GAAP measure)

    $ (7,756 )    $ (6,415 )    $ (6,710 )    $ (6,751 )    $ (27,632 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Consolidated

           

Revenue

    $ 52,818      $ 51,329      $ 56,856      $ 59,707      $ 220,710   

Cost of revenue

      29,122        25,927        31,140        32,692        118,881   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Gross Profit (non-GAAP measure)

      23,696        25,402        25,716        27,015        101,829   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Gross Profit margin

      44.9 %      49.5 %      45.2 %      45.2 %      46.1 % 

Depreciation and amortization

      4,969        5,249        5,450        5,381        21,049   

Selling, general and administrative

      12,547        12,559        13,973        13,476        52,555   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Operating income

    $ 6,180      $ 7,594      $ 6,293      $ 8,158      $ 28,225   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted EBITDA (non-GAAP measure)

    $ 12,621      $ 13,902      $ 14,450      $ 15,205      $ 56,178   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
     23.9 %      27.1 %      25.4 %      25.5 %      25.5 % 

Does not include Inmarsat’s Enterprise Energy business unit, as RigNet owned these operations beginning February 1, 2014.

     Three Months Ended  
     March 31,
2014		  
     (in thousands)  

Reconciliation of Gross Profit to Gross Profit (excluding depreciation and amortization):

   

Gross profit

    $ 22,054   

Depreciation and amortization related to cost of revenue

      6,468   
  

 

 

  

Gross Profit (excluding depreciation and amortization)

    $ 28,522   
  

 

 

  

Includes acquired Inmarsat’s Enterprise Energy business unit operations beginning February 1, 2014

 

     Three Months Ended  
     March 31,
2014		  
     (in thousands)  

Reconciliation of Net Income to Adjusted EBITDA:

   

Net income

    $ 2,308   

Interest expense

      481   

Depreciation and amortization

      6,797   

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

      (73 ) 

Stock-based compensation

      1,148   

Acquisition costs

      2,332   

Income tax expense

      3,215   
  

 

 

  

Adjusted EBITDA (non-GAAP measure)

    $ 16,208   
  

 

 

  

Includes acquired Inmarsat’s Enterprise Energy business unit operations beginning February 1, 2014

     Three Months Ended     Year Ended  
     March 31,      June 30,      September 30,      December 31,     December 31,  
     2013      2013      2013      2013     2013  
            (in thousands)                      

Reconciliation of Gross Profit to Gross Profit (excluding depreciation and amortization):

              

Gross profit

    $ 18,968       $ 20,414       $ 20,564       $ 22,004      $ 81,950   

Depreciation and amortization related to cost of revenue

      4,728         4,988         5,152         5,011        19,879   
  

 

 

     

 

 

     

 

 

     

 

 

    

 

 

  

Gross Profit (excluding depreciation and amortization)

    $ 23,696       $ 25,402       $ 25,716       $ 27,015      $ 101,829   
  

 

 

     

 

 

     

 

 

     

 

 

    

 

 

  

Does not include Inmarsat’s Enterprise Energy business unit, as RigNet owned these operations beginning February 1, 2014

  

     Three Months Ended     Year Ended  
     March 31,      June 30,      September 30,      December 31,     December 31,  
     2013      2013      2013      2013     2013  
            (in thousands)                      

Reconciliation of Net Income to Adjusted EBITDA:

              

Net income

    $ 3,775       $ 4,915       $ 2,407       $ 5,447      $ 16,544   

Interest expense

      507         440         432         904        2,283   

Depreciation and amortization

      4,969         5,249         5,450         5,381        21,049   

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

      41         33         93         (101 )      66   

Stock-based compensation

      817         713         696         737        2,963   

Acquisition costs

      -         -         2,791         1,324        4,115   

Income tax expense

      2,512         2,552         2,581         1,513        9,158   
  

 

 

     

 

 

     

 

 

     

 

 

    

 

 

  

Adjusted EBITDA (non-GAAP measure)

    $ 12,621       $ 13,902       $ 14,450       $ 15,205      $ 56,178   
  

 

 

     

 

 

     

 

 

     

 

 

    

 

 

  

Does not include Inmarsat’s Enterprise Energy business unit, as RigNet owned these operations beginning February 1, 2014

  

Non-GAAP Financial Measures

This Current Report on Form 8-K contains the following non-GAAP measures: Gross Profit (excluding depreciation and amortization) and Adjusted EBITDA. Gross Profit (excluding depreciation and amortization) and Adjusted EBITDA are financial measures that are not calculated in accordance with generally accepted accounting principles, or GAAP. We refer you to the Company’s most recent 10-K filing for the year ended December 31, 2013, for a more detailed discussion of the uses and limitations of our non-GAAP financial measures.

GAAP defines gross profit as revenue less cost of revenue, and includes in costs of revenue depreciation and amortization expenses related to revenue-generating long-lived and intangible assets. We define Gross Profit (excluding depreciation and amortization) as revenue less cost of revenue (excluding depreciation and amortization). This measure differs from the GAAP definition of gross profit as we do not include the impact of depreciation and amortization expenses related to revenue-generating long-lived and intangible assets which represent non-cash expenses. We use this measure to evaluate operating margins and the effectiveness of cost management.

We define Adjusted EBITDA as net income (loss) plus interest expense, income tax expense (benefit), depreciation and amortization, impairment of goodwill, (gain) loss on retirement of property and equipment, change in fair value of derivatives, stock-based compensation and IPO or merger/acquisition costs and related bonuses. Adjusted EBITDA should not be considered as an alternative to net income (loss), operating income (loss) or any other measure of financial performance calculated and presented in accordance with GAAP.

About RigNet

RigNet (NASDAQ: RNET) is a leading global provider of managed remote communications, telecoms systems integration and collaborative applications dedicated to the oil and gas industry, focusing on offshore and onshore drilling rigs, energy production facilities and energy maritime vessels. RigNet provides solutions ranging from fully-managed voice and data networks to more advanced applications that include video conferencing and real-time data services to over 1,100 remote sites in over 45 countries on six continents, effectively spanning the drilling and production industry. RigNet is based in Houston, Texas. For more information, please visit www.rig.net. RigNet is a registered trademark of RigNet, Inc.

Forward Looking Statements

This Current Report on Form 8-K 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 the future, not past, events. Forward-looking statements are based on the 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, and often contain words such as “anticipate,” “believe,” “intend,” “expect,” “plan” or other similar words. These forward-looking statements involve certain risks and uncertainties that 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.

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