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RigNet Inc (NASDAQ:RNET)
Q1 2019 Earnings Call
May. 7, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, welcome to RigNet's First Quarter 2019 Earnings Conference Call. My name is Skyler and I'll be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session after the prepared remarks by management. (Operator Instructions) I will now turn the call over to Lee Ahlstrom, RigNet's Senior Vice President and Chief Financial Officer. Mr. Ahlstrom, please proceed.

Lee M. Ahlstrom -- Senior Vice President and Chief Financial Officer

Thank you, Skyler and good morning and welcome to RigNet's First Quarter 2019 Earnings Call. A copy of our earnings press release with supporting schedules including schedules which reconcile the non-GAAP metrics we'll discuss today to GAAP metrics is posted to our website www.rig.net under our Investor Relations page. For those of you who would like the release in PDF format, we posted that as well.

Before we get started, I'd like to make you aware that we will be making forward-looking statements today. Any statements that are not historical facts, including statements related, but not limited to market expectations and future plans are forward-looking statements that involve certain risks, uncertainties and assumptions. These include, but are not limited to risks associated with the general nature of the oil and gas industry, customers and other third-party interactions, any discussion of the GX Arbitration proceedings and possible outcomes, financial guidance and other factors detailed in the Risk Factors section of RigNet's most recent Annual Report on Form 10-K and in our other filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those indicated. RigNet disclaims any duty to update the information presented on this call. And now, I'd like to turn the call over to Steve Pickett, RigNet's Chief Executive and President, Steve?

Steven E. Pickett -- Chief Executive Officer and President

Thank you, Lee and good morning to everyone and thank you for joining us on today's call. It's been a short six weeks since we reported our fourth quarter earnings and we're glad to be back in front of you today to share the latest about RigNet's operating and financial results. As usual, I'll open with some comments on the team's accomplishments. We'll provide an update on how we're progressing and executing against our previously stated strategy and we'll provide some insight into what we're seeing in the markets we serve. After that, Lee will provide a review of our financial highlights. After that, we'll open it up for questions.

Yesterday, RigNet reported a net loss for the quarter of $12 million or $0.63 per share based on revenues of $57.5 million. Adjusted EBITDA, a non-GAAP measure we define in our press release and one of our key performance metrics was $8.4 million for the first quarter. Both revenue and adjusted EBITDA were up compared to first quarter 2018 and down sequentially largely due to system integration lumpiness as we signaled on our last call. Lee we will provide some color on that in his remarks.

Operationally and strategically, we continued to execute against our plan. In terms of the energy market that we serve, commodity prices are supportive of the business, partially driven by the announcement that the US would not approve additional waivers for Iranian crude imports, continued unrest in Venezuela, and Saudi Arabia's suggestion that OPEC would continue their previously implemented production cuts through the end of 2019.

Market activity offshore continues to improve in terms of both floater and jack up utilization, each of which is near the (ph) 80% level in terms of marketed rigs. We believe all of these factors plus continued strength onshore will help drive revenue in the MCS segment. In terms of the MCS business, our revenue growth versus competitors in 2018 has reinforced the logic of our overall business strategy. We've remained price competitive through the scale benefits of our acquisitions and through organic growth in markets like production and midstream.

We've also strategically differentiated ourselves through development of a broad technology portfolio and therefore, a more diversified revenue stream by moving up the technology stack. As a result, our offering now includes outstanding global support combined with solutions where the discerning customer has the ability to secure their critical communications and data through our cyber security portfolio and has the opportunity to improve their bottom line through deployment of specialized apps including Intelie, our real-time machine learning platform.

Customers are increasingly embracing the fact that these up the technology stack services depend particularly in remote locations on the performance of the network. Having one throat to choke when procuring these services allows for faster implementation, more rapid problem resolution, and better overall performance of the critical applications that run on the Managed Communication Services platform.

In terms of organic growth opportunities for the MCS segment, in early third quarter, we expect to turn on the first of four FPSOs for Petrobras in Brazil. This is a relatively new market focus for us and represents additional opportunity to provide MCS as well as applications and cyber security solutions for these highly data-intensive production operations.

We are also focused on expanding the types of communication services we deliver to our customers. Related to that mission and specifically to our owned (ph) infrastructure in the Gulf of Mexico, at the end of the first quarter, approximately 63% of the LTE network is operating and carrying live traffic. Today, that percentage has risen to approximately 77% with additional sites under construction that should allow us to be essentially complete early in the third quarter.

In terms of our Apps & IoT segment, we continue to grow that business and we're looking at this segment organically as our main growth driver. In fact, more and more customers are recognizing that harnessing the power of real-time machine learning is as much about network design, configuration and performance as it is about the algorithms themselves and that customer realization drives new wins in our Managed Communication Services business and delivers new revenue streams for our Apps & IoT segment.

During the first quarter, our Apps & IoT team completed our initial Intelie related development activities for our first fracking customer, which will help drive additional revenue in late Q2 and beyond. We also turned up revenue on the Intelie contract that we announced on our last call with a major drilling contractor to help them monitor BOPs and key rig systems. Furthermore, during the second quarter, we signed a second contract with that same customer to provide specialized offshore IT as a service related to mission critical data and video support surfaces tailored to maximize the benefits of machine learning paired with real-time operating centers.

Today, I'm happy to share that this new Apps & IoT customer using RigNet's Intelie-based real-time machine learning is Transocean. During the quarter, we also continued work with what is now six supermajors, three in deployment of the Intelie platform, two with POV trials, and one in active contract negotiations. In terms of financial results in this segment of our business, the team delivered year-over-year growth of just over 50% and sequential quarter-over-quarter growth of just over 26%.

Turning to the SI business, performance in Q1 was in line with our expectations. Revenue declined quarter-on-quarter as we signaled it would on our last call as a result of the lumpy nature of the business in this segment. Backlog remains strong at $43.1 million. We expect 60% (ph) of that to convert to revenue in the balance of the year with the rest in 2020 and we continue to respond to a robust pipeline of bidding opportunities.

Shortly after our last earnings call, we announced our collaboration with CertifiedSafety Systems to introduce our digital workforce tracking solution to one of our key global system integration customers, a US based supermajor. This solution combines SmartConnect's data visualization asset monitoring capability with IntelieLive's machine learning based predictive analytics to help customers improve both safety and operational efficiency. We believe this solution has wide range and potential across the energy value chain and beyond. This win demonstrates the Apps & IoT pull-through opportunities that exist, not just with our Managed Communication Services business, but also with our System Integration business.

In terms of the status of the GX Arbitration, there's really not any incremental news we can share. We've continued during the course of the quarter to prepare for the upcoming hearing in June by working with our expert witnesses, external counsel and our own employees to mount a vigorous presentation of our counter claims. We believe everything remains on track to meet the schedule for the hearing in late June and continue to expect some type of ruling in the second half of the year. As Lee and I heard on our recent non-deal road show, there are some investors who believe the equity has been punished disproportionately as a result of the Phase 1 outcome. When we announced the award back in December, the equity dropped commensurately. Six weeks ago when we disclosed our reserve at essentially the same amount as the award, the shares took another tumble and have languished.

If you think about the sum of the parts valuation, we're trading at just about one times revenue of the MCS business. Buying the shares at these prices is like buying the MCS business and getting the higher multiple cyber security and machine learning growth business for free and a growing Systems Integration business and a next-generation network infrastructure deployed in the Gulf of Mexico.

Needless to say, both the Board and the management team are disappointed in the stock performance, but we're pleased with the internal metrics of the business that show we are executing against our strategic plan, which we believe will be reported in the medium and long-term as it relates to share price. In terms of (technical difficulty) we continue to weigh the pros and cons. However, we are comfortable telling you that we believe our full year adjusted EBITDA performance in 2019 will be above that of 2018. With that, let me turn it over to Lee. Lee?

Lee M. Ahlstrom -- Senior Vice President and Chief Financial Officer

Thank you, Steve. Recapping what Steve said earlier, consolidated quarterly revenue was $57.5 million, up 6.8% compared to $53.8 million in the prior year quarter with all of our segments reporting revenue increases compared to 1Q '18. Revenue was lower by 4.5% from $60.2 million sequentially. The decrease compared to fourth quarter included a $3.9 million decrease in SI revenue, which as you know, uses projects based accounting and can be, the word we like to use is lumpy. Additionally, there were 90 days in Q1 versus 92 days in Q4 or two fewer days. As a reminder, the majority of our managed services contracts bill based on day rates. This was offset by an increase in our Apps & IoT segment, which I'll touch on later.

GAAP net loss attributable to common stockholders in the first quarter 2019 was $12 million or $0.63 per share compared to net loss of $5.6 million or $0.31 per share in the first quarter 2018 and net loss of $49.7 million or $2.62 per share in the prior quarter. As a reminder, the net loss in the fourth quarter 2018 included the net $50.6 million GX charge. Excluding the impact of the GX charge, we generated positive net income in the fourth quarter 2018 of $0.9 million or $0.05 per share.

Adjusted EBITDA was $8.4 million in the first quarter of 2019, a 13% increase compared to $7.4 million in the first quarter of 2018. Compared to the $10.5 million in the fourth quarter of 2018, it was down approximately 20%. The decrease in adjusted EBITDA in the first quarter of '19 correlates with the lower revenue compared to last quarter, specifically in SI coupled with the effect of two fewer days.

Let's talk a little bit about the segments. Managed Communication Services revenue was $42.3 million for the quarter compared to $42.1 million in the prior year quarter and $42.9 million in the fourth quarter of '18. As mentioned, the decrease of 1.3% compared to the fourth quarter was not out of line given there were two fewer days in the quarter.

Gross margin in the first quarter of '19 was 36.3% versus 38.8% in the first quarter of '18 and 39.1% in the fourth quarter of '18. The decline was largely driven by an increase in equipment sales in 1Q '19 where the margins are lower than for our typical communication services. Our MCS site count for the first quarter was 1,360, up by 161 year-over-year and up by 37 sites sequentially compared to the fourth quarter. As we discussed on our last call, we've seen some recovery in site count since year-end driven by commodity price recovery after the fourth quarter dip. Our offshore rig count was up one, net of six Noble rigs rolling off. We've had an additional four Noble rigs roll off in April and are currently expecting that the final two rigs will be decommissioned sometime in the June, July time frame. The production and other site counts both increased nicely during the quarter while maritime was essentially flat.

Apps & IoT revenue was $8 million for the quarter, up 50% compared to $5.3 million in the prior year quarter and up about 26% from $6.3 million sequentially. The increase was largely as a result of two of our Intelie customers ramping up significantly including Transocean and one of our supermajors. We also enjoyed additional revenue due to increases in data usage among our IoT customers and an increase in equipment sales. We expect to continue to see Intelie's contribution increase throughout the year as current customer revenue ramps and new customers are brought on.

System Integration revenue for the quarter was $7.2 million, up 11.1% from $6.4 million in the prior year quarter, but down (ph) $11 million in the prior quarter. The revenue reduction from 4Q '18 to 1Q '19 was due to the variable nature of the business, which uses the cost-to-cost method of project accounting. 1Q '19 saw lower procurement costs and therefore less revenue. Gross margin for SI increased to 30.5% from 24.8% in the prior year quarter as a result of increased project management discipline helping to drive SI costs lower. SI margins were down from 42.3% in the fourth quarter of 2018, which benefited from a few high margin change orders.

Project backlog remains strong at $43.1 million as of 3/31/19, up 83% from first quarter 2018's total of $23.5 million, but down from $45.4 million (ph) at 12/31/18. G&A expenses totaled $16.5 million in 1Q '19 compared to $13.7 million in 1Q '18 and $12.1 million in 4Q '18. The SG&A increase was largely due to additional professional fees, which included $2.1 million of GX Phase II costs related to preparing our case for our counter claims. GX related costs were up about $1.8 million quarter-on-quarter as a result of these increased legal efforts. We also recorded about $600,000 in severance costs. This was a result of continued efforts to rightsize the business along with our growing focus on the Apps & IoT segment.

Finally, we had $4.5 million of stock-based compensation, which included the equity awards for results under our 2018 short-term incentive plan. Stock-based compensation increased $2 million compared to the prior year quarter based on stronger financial performance in 2018 versus 2017 and increased $4.1 million compared to the fourth quarter primarily because we only grant these short-term incentive plan awards annually in the first quarter. Capital expenditures were $7.1 million compared to $6.6 million in the prior year quarter and $10.8 million in the fourth quarter. CapEx spend for the quarter included $1.9 million of investment in our LTE network and about $400,000 for the build out of the new Lafayette, Louisiana facility that will enable us to consolidate three separate legacy facilities. Both of these are effectively one-time projects. We expect the LTE project to be completed early in the third quarter. The remaining $4.8 million of CapEx in 1Q '19 was substantially composed of success based commitments.

Finally, let's turn to the balance sheet. As of December 31, 2018, cash was $18.7 million and our outstanding debt was $75.5 million including both current and long-term. In the first (ph) quarter, we amended our agreement with our existing bank group. Following the adverse GX ruling, we proactively negotiated an amendment to accommodate the liquidity necessary to fund any GX dispute payments when they come due. The amendment included converting $30 million of our revolver balance to a new term facility, freeing up capacity on the revolver as well as extending the maturity date to April of 2021. About a week ago, we discovered issues with the way we have previously classified certain performance bonds related to a few of our large SI projects with regard to our bank covenant calculations. This issue has existed for at least five years. We notified our banks and have already secured a waiver of any past issues and we are currently working on an amendment to our credit facility to accommodate these performance bonds on a go-forward basis. Our external auditors have agreed with our assessment that no financial restatement is required. We've already reviewed and revised our internal controls to rectify the issue and as you would expect, we have also reexamined our conclusion about internal controls to the end of 2018 and we expect to file a 10-K/A shortly to revise that controlled assessment. We are pleased with how quickly our team was able to resolve the issue with the support of both our auditors and our bank group. With that, let me turn it back to Steve.

Steven E. Pickett -- Chief Executive Officer and President

Thank you, Lee. Now before we open it up for questions, I want to thank the team at RigNet for their dedication and their energy, our more than 600 employees who are executing for our customers in over 50 countries around the world are critical to our success and I recognize and appreciate their tireless efforts. So again thank you to our team. And with that, please open up the line for questions.

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from Allen Klee with Maxim Group. Your line is now open.

Allen Robert Klee -- Maxim Group LLC -- Analyst

Good morning. In the managed services segment, I think you've said that there is around six more rigs to roll off from Noble in the next quarter, but you also mentioned winning some new business with a large international offshore driller and two floating production storage and offloading vessels. I'm just wondering for the next quarter, how do we think about the impacts of rolling off new stuff. Is it possible that they can offset themselves or should we expect the decline in that segment to be less than it was in 1Q. Thanks.

Steven E. Pickett -- Chief Executive Officer and President

Thanks, Allen. Good morning. Hope you're doing well. Yes, so let me just be clear going back through the script and everything. First, we did say that at the end of Q1, there were another six Noble rigs that were yet to roll off. As of today, four of those six have already rolled off and we're still waiting on the last two, which would be June, July kind of time frame. The FPSOs in Brazil will ramp up and there are actually four of those. So they'll start to ramp up here late second quarter, early third quarter kind of time frame just depending a little bit on their schedule and everything else down in Brazil. And of course we do continue to win business. Now the larger international drilling contract we mentioned was Transocean and that was really focused on Intelie and the Intelie win there where turning up a number of services for them. So all-in-all, I think all of these things will offset the decline in the Noble revenue from first quarter.

Allen Robert Klee -- Maxim Group LLC -- Analyst

Okay, thank you. And then on the SI segment, do you still -- is it the thinking that it's still more second half leveraged than first half in terms of the revenue contribution?

Steven E. Pickett -- Chief Executive Officer and President

Yes, right. So on the last call, we talked about SI being effectively camel shaped right, lower in the first and fourth quarters, higher in the second and third quarters. That's still the view.

Allen Robert Klee -- Maxim Group LLC -- Analyst

Okay and the -- Okay, I'll get back in the queue. Thank you.

Steven E. Pickett -- Chief Executive Officer and President

Okay, thanks, Allen.

Lee M. Ahlstrom -- Senior Vice President and Chief Financial Officer

Thanks, Allen.

Operator

(Operator Instructions) Our next question comes from Walt Chancellor with Macquarie. Your line is now open.

Walter Chancellor -- Macquarie Capital -- Analyst

Hey, thank you guys. So I guess one for Lee on the CapEx front. The cash outflow is a little bit less than the $7 million you cited. I believe on the last call you said something like $6 million of sort of the normal quarterly run rate plus some of the incrementals in the first half of the year. Is that still the expectation? Would you expect to catch up in later quarters and I guess how are you thinking about full year 2019 CapEx from a cash outflow perspective?

Lee M. Ahlstrom -- Senior Vice President and Chief Financial Officer

Yes, so on a cash basis, I mean obviously the difference between what we have in cash versus the total number that we mentioned there is you've got some accrued CapEx expenditures. So my view right now is that CapEx will be at or around what it was in 2018 and so I do expect that we're going to catch up. Some of that of course is going to be related to what we do with success based CapEx, right. So if we have more opportunities to go ahead and put communication services on rigs or FPSOs, we may elect to spend that full amount. I don't see it growing substantially. If we have fewer opportunities, we will continue to focus on trying to tighten that up and get back to our roughly $6 million a quarter kind of run rate.

Walter Chancellor -- Macquarie Capital -- Analyst

Okay, great. Very helpful. And then --

Lee M. Ahlstrom -- Senior Vice President and Chief Financial Officer

And again, sorry, Walt, and then again that's why I was trying to make the comment in the script about the Lafayette facility and T-Mobile being kind of special one-off projects. They don't contribute to that run rate. They are on top of that run rate.

Walter Chancellor -- Macquarie Capital -- Analyst

Right, and then, Steve, on the machine learning and the hydraulic fracturing front. I've seen in E&P this quarter as well as large service companies speak about using machine learning for fracturing. Clearly, there is a trend and an interesting market for you all. Maybe you could help me think about the landscape and where you all sit in that. Are you only bringing a sort of fully developed product to the hydraulic fracturing service providers or can Intelie provide sort of a base load for various parties to exploit and develop these machine learning programs or hydraulic fracturing whether they're service companies, E&Ps, anyone interested in making better wells?

Steven E. Pickett -- Chief Executive Officer and President

Yes, so indeed, the first release of the product is now being used in the field and it's for pressure pumping in particular and it's related to things like preventive maintenance, looking for pressure spikes as an example and we're actively communicating the availability of that to other pressure pumpers in the US and outside the US. So we think there is a large market opportunity out there for us. Certainly it helps drive bottom line performance for frackers and for operators.

Lee M. Ahlstrom -- Senior Vice President and Chief Financial Officer

Yeah, I think, Walt, if you look in our latest investor presentation, we've got a nice chart on Page 17 which really talks about IntelieLive being the platform for the real-time analysis and analytics that goes on and then the applications that effectively sit on top of that and so the Intelie platform is I think somewhat unique in the sense that it's this open source platform where big data and subject matter experts in particular fields can come together to create these real-time optimization programs or modules that sit on the IntelieLive platform. So while Steve said, right now it's around the monitoring and maintenance functions, there is significant opportunity there to improve the actual well drilling characteristics just as we've done offshore with Petrobras right where we helped them figure out how to drill more effectively through the pre-salt layer down in Brazil.

Steven E. Pickett -- Chief Executive Officer and President

It will lead to some kind of clues (ph) through from a financial point of view is you typically get started with a customer solving a particular problem or a particular set of problems and then once you've got started, you have an opportunity to layer on as Lee was describing other applications that solve other problems and in some cases, those are problems that are adjacent to the problem that was solved through the first set of algorithms and when those new applications are turned on, obviously, it's an opportunity for incremental revenue. So the incremental revenue tends to have a step function characteristic to it when new algorithms that we call apps are added to the platform that's being used by the customer, if that helps?

Walter Chancellor -- Macquarie Capital -- Analyst

Yes, it does. Thank you very much. I'll hop back in the queue.

Operator

(Operator Instructions) And we have a follow-up question from Allen Klee. Your line is now open.

Allen Robert Klee -- Maxim Group LLC -- Analyst

Yes. I know one of the objectives for the year is to work on improving collections. I was wondering if you could comment on the efforts there.

Steven E. Pickett -- Chief Executive Officer and President

Yes. I'd be happy to comment on that, Allen. We actually in the last couple of months of starting to make some very good progress on the collection side. I believe I've said in the past that we've not been satisfied with how the AR has built up and one of the interesting things that we've been able to do as we've dug into this is actually work with some of our customers who've had very complicated billing and collection processes in their own houses right and where, for example, they might require a large complicated data-intensive time-consuming roll-up of all the invoices that we would've sent them that would then go through some difficult internal process. In two of our largest customers, we've actually been able to go sit down with a team from these customers and revise the process so that we eliminate that complicated roll out and we're actually starting to now see the cash collections come in. So it can be a bit of a slow process in the sense that every customer is a little bit different and in this environment, it's not unusual to see customers take advantage of suppliers by slow paying, but I believe we are on the right track and believe that the team working this has done a great job to make some inroads in cutting down the receivables. You did see a receivable increase here at the end of 3/31, but that's largely, in fact, its really entirely due to billing for our SI business as well as billing for a number of the T-Mobile sites that were turned on cause we couldn't bill for those until the sites were actually turned on. So if you look just at the the MCS and other business in terms of receivables, that actually has started to come down.

Allen Robert Klee -- Maxim Group LLC -- Analyst

Thank you. For the roll out of the 4G/5G network enabled in the Gulf of Mexico, could you maybe talk about how you think about in 2020 how this might help contribute to recurring revenue for you?

Steven E. Pickett -- Chief Executive Officer and President

There are two components that can contribute incremental revenue. One is related to a managed services contract around running that network and that's a long-term managed services contract with our partner. The other is related to a revenue share associated with the usage of the network and that we have not been able to model. There is not a lot at cases out there that tell us what that should be when it comes to offshore LTE networks in the Gulf of Mexico. So we've not modeled that just yet.

Lee M. Ahlstrom -- Senior Vice President and Chief Financial Officer

But, Steve, it's interesting, right. We are getting some interesting inquiries from our customers out there about the capabilities of the network and what we can provide to them through that.

Steven E. Pickett -- Chief Executive Officer and President

Yes, there is no doubt. There's a great deal of interest in this network becoming available and the fact that it operates at very low frequencies means that it will have the ability to penetrate these large metal structures a lot better than other frequencies that might be used. So the interest level is high and we're thrilled about getting that network up and running and carrying traffic across many thousands of square miles in the Gulf of Mexico.

Allen Robert Klee -- Maxim Group LLC -- Analyst

Great, my last question is for the -- you announced a three-year contract on the Apps & IoT side that was a Services as a -- or providing service, could you maybe just go into a little like what you'll be providing for that?

Steven E. Pickett -- Chief Executive Officer and President

Yes, so that I believe you're referring to the second Transocean contract. Essentially, there are systems that feed the real-time machine learning platform called Intelie -- our real-time machine learning platform called Intelie and it's essentially managing those systems that provide the data speeds to allow us to do machine learning on a full time basis and so the collection, all of that -- there is some value associated with one having one throat to choke as I mentioned in the transcript, having one throat to choke as it relates to not just the communications network, but having one throat to choke as it relates to those data systems that feeds the machine learning platform.

Allen Robert Klee -- Maxim Group LLC -- Analyst

Thank you. And then, you did mention that you expect these two contracts in Apps & IoT to kind of ramp-up going forward. Is there any way we can think about the degree of that?

Steven E. Pickett -- Chief Executive Officer and President

We haven't shared those numbers, Allen, but the deployment has begun. As I mentioned, we're hopeful that we'll continue to add to the platform --incremental applications that will drive even more incremental revenue, but what I can communicate at this point is that indeed revenue has started.

Allen Robert Klee -- Maxim Group LLC -- Analyst

Okay, thank you so much.

Steven E. Pickett -- Chief Executive Officer and President

Thanks, Allen.

Operator

And we have a follow-up question from Walt Chancellor. Your line is now open.

Walter Chancellor -- Macquarie Capital -- Analyst

So just to follow up on the view that adjusted EBITDA would be up on a full year basis. What in particular gives you confidence in that outlook without necessarily getting too specific? Is it a function of activity from here? Pricing, contract wins you have just what's giving you confidence around that because obviously, there needs to be a step up from current levels to achieve that.

Steven E. Pickett -- Chief Executive Officer and President

Yes. So it's really a combination of those things. One, indeed activity levels are up. As I mentioned earlier, just generally offshore. In addition to that we are very pleased with the roll (ph) trajectory as it relates to the Apps & IoT business and indeed, we expect that camel shape as it relates to the Systems Integration business, so you know better performance there specifically in the second and third quarter.

Walter Chancellor -- Macquarie Capital -- Analyst

Okay, thank you.

Operator

At this time, I'm showing no further questions. I'd like to turn the call back over to Lee for any closing remarks.

Lee M. Ahlstrom -- Senior Vice President and Chief Financial Officer

Thanks, Skyler and thank you all for joining us on our first quarter earnings call. I'll be available if you have any follow up questions that weren't addressed today and of course, we invite you to join us in August when we expect to report our second quarter 2019 earnings. Thank you and have a good day.

Duration: 38 minutes

Call participants:

Lee M. Ahlstrom -- Senior Vice President and Chief Financial Officer

Steven E. Pickett -- Chief Executive Officer and President

Allen Robert Klee -- Maxim Group LLC -- Analyst

Walter Chancellor -- Macquarie Capital -- Analyst

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