Image source: Getty Images.
While oil prices are well off their bottom from earlier this year, that rebound has not flowed through to the offshore drilling sector just yet. That was evident in RigNet's (RNET +0.00%) quarterly results, which continued their decline in the third quarter. While the company did see some improvements, it could still be quite some time before its results start rising again.
RigNet results: The raw numbers
|
Metric |
Q3 2016 Actuals |
Q3 2015 Actuals |
Growth YOY |
|---|---|---|---|
|
Revenue |
$50.6 million |
$66.3 million |
(23.7%) |
|
Net income (loss) |
($1.7 million) |
($10.9 million) |
N/A |
|
Earnings per share (EPS) |
($0.09) |
($0.62) |
N/A |
YOY = year over year. Data source: RigNet Inc.
What happened with RigNet this quarter?
RigNet's results continue to slip:
- Managed service revenue slipped to $47.2 million, which was down 6% from last quarter and 22.4% year over year. Driving the decline was a continued reduction in spending by oil and gas companies.
- Telecom systems integration revenue slumped 27.7% from last quarter and 38.2% year over year, falling to $3.4 million.
- The revenue decline held earnings in the red. That said, the company did manage to shrink the net loss by keeping a lid on costs. Also, adjusted EBITDA only fell 1.2% from last quarter, which outperformed the revenue decline.
- On a more positive note, it generated $6.6 million in unlevered free cash flow, up $4 million from last quarter due to a decrease in capex.
What management had to say
As CEO Steven Pickett said about the company's results:
Despite continued headwinds in the energy market, we are pleased with the progress we have made related to cost containment and capex management, which helped improve our Unlevered Free Cash Flow to $6.6 million for this quarter. We remain focused on continuing implementation of initiatives to improve operating leverage of the Company, developing a broad range of SaaS and cyber security solutions for our customers, and growing our business in new vertical markets.
RigNet's focus right now is to do what it can to offset the weak offshore market. That not only means cutting costs to improve profitability but looking for new services and markets to start growing its business. The company is starting to see some success on this front, by winning a multiyear managed service contract renewal with a large offshore driller. One of the solutions it is providing is its CrewWifi development, which is a Software as a Service (Saas) offering. That was one of two contract awards the company announced during the quarter. The other was a multivessel contract to provide support for an international offshore energy service company.
Looking forward
Despite these recent contract awards, the offshore drilling sector still might not have hit rock bottom. That is the current view of leading offshore drilling contractor Transocean (RIG +4.09%). On the company's third-quarter conference call, CEO Jeremy Thigpen said that "with 2016 coming to a close and most operators' budgets for next year nearing completion, our current thinking is that 2017 will represent the trough for spending in the offshore market." Moreover, Thigpen thinks that oil would need to be closer to $60 per barrel before major integrated oil companies start new projects. Given that outlook, it might not be until the middle of next year before the offshore drilling market starts to show signs of improvement.
