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RigNet Inc.'s Revenue Keeps Growing Even as Its Losses Pile Up

By Matthew DiLallo – Mar 7, 2018 at 10:00AM

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The provider of remote communications solutions has yet to return to profitability.

RigNet (RNET) continues to report mixed financial results. While revenue rose once again, higher expenses deepened its losses. However, that could change later this year given that conditions in the offshore drilling market may finally start to improve, taking RigNet's earnings up with it.

RigNet results: The raw numbers

Metric

Q4 2017

Q4 2016

Year-Over-Year Change

Revenue

$56.8 million

$52.8 million

7.7%

Net income (loss)

($5.7 million)

($3.8 million)

N/A

Earnings per share

($0.31)

($0.21)

N/A

Data source: RigNet Inc.

An offshore drilling rig at sunset.

Image source: Getty Images.

What happened with RigNet this quarter? 

Recent acquisitions provided a lift.

  • RigNet has worked hard to offset the persistent weakness in the offshore drilling market by making acquisitions, which helped boost revenue versus the year-ago period. Furthermore, sales were also higher sequentially, marking the third consecutive quarterly rise in revenue for the company.
  • Driving the year-over-year increase in sales was its recently established applications and Internet of Things (apps and IoT) segment, which added $4.4 million to the top line compared to the year-ago period. RigNet noted that this was due to its "strategy of growth into the application layer and internet-of-things space coupled with the acquisitions of DTS and ESS." It also benefited from a $3.8 million year-over-year improvement in systems integration revenue, which helped offset a $4.1 million decline in managed services revenue.
  • Revenue growth hasn't yet translated into a return to profitability. That's because the company experienced a big uptick in costs because of investments in its growth initiatives such as apps and IoT as well as from increased sales and marketing expenses. It also recorded other costs related to acquisitions and the recent departure of its CFO.
  • While losses widened, underlying profitability as measured by adjusted EBITDA improved from $7.8 million in the third quarter to $8.5 million in the fourth. Unlevered free cash flow, likewise, rose from $2 million in the third quarter to nearly $4.6 million last quarter.

What management had to say 

According to CEO Steven Pickett, "The RigNet team delivered revenue growth for the third sequential quarter along with two sequential quarters of growth in both Adjusted EBITDA and Unlevered Free Cash Flow. Additionally, compared to the prior year quarter, site count increased in every category that we track with an aggregate increase of 250 sites." As he pointed out, RigNet's investments are slowly starting to pay off, resulting in a steady improvement in several of its key financial metrics. At the same time, the number of sites it serves has risen thanks to recent acquisitions as well as an uptick in activity in the oil market owing to higher oil prices. 

RigNet continued to invest in the future by acquiring predictive analytics company Intelie, which will enable the company to provide a highly differentiated managed communications service to its customers by combining it with the cybersecurity capabilities from its recent acquisition of Cypher. As a result, Pickett said that "our clients will now be always connected, always secure and always learning." 

Looking forward 

While RigNet's acquisitions should continue to provide a boost in the coming year, what the company needs most is an improvement in offshore drilling activities. That's exactly what many in the industry expect will happen this year. The CEO of oil-field service giant Halliburton, for example, said he was "encouraged for the first time in three years because "green shoots are appearing" via more service requests. Meanwhile, an executive at Schlumberger said that his company expects a "return to growth for the first time since 2014" from its offshore-focused international operations. Those forecasts bode well for RigNet, which would benefit from a rise in offshore drilling activities since it would likely see an uptick in demand for the communication services it provides. 

Matthew DiLallo owns shares of RigNet. The Motley Fool recommends RigNet. The Motley Fool has a disclosure policy.

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