RigNet (NASDAQ:RNET) has struggled in recent years due to the downturn in the offshore drilling market. Industry conditions, however, are starting to improve, thanks to higher oil prices and a reduction in offshore drilling costs. The uptick in that market, as well as the company's efforts to diversify, are starting to boost its financial results, which was evident in the first quarter.

RigNet results: The raw numbers

Metric

Q1 2019

Q1 2018

Year-Over-Year Change

Revenue

$57.5 million

$53.8 million

6.8%

Net income (loss)

($12 million)

($5.6 million)

N/A

Earnings (loss) per share

($0.63)

($0.31)

N/A

Data source: RigNet Inc.

What happened with RigNet this quarter?

RigNet's underlying operations performed well:

  • Revenue from RigNet's managed communications services segment increased by 0.7% compared with the year-ago period to $42.3 million. Operating earnings in this segment, however, declined almost 17% to $5.3 million due to higher costs. Driving the revenue growth was a 13.4% increase in the site count, which totaled 1,360 during the quarter, mainly due to growth in production sites related to onshore drilling activities.
  • Sales in the applications and Internet of Things (apps & IoT) business unit rocketed 50% year over year to $8 million. Operating income, meanwhile, leaped 64% to $1.7 million. Driving that growth was the continued adoption of the company's technology.
  • Systems integration revenue, meanwhile, rose 11% to $7.2 million as the company made progress on its projects for customers. Operating income, on the other hand, plunged more than 35% to $400,000 due to higher selling, general, and administrative costs.
  • RigNet's revenue growth and strong earnings in apps & IoT helped drive a 13% year-over-year improvement in adjusted EBITDA to $8.4 million. The company's net loss, however, widened because of higher stock-based compensation costs and an additional $2.1 million in expenses relating to its dispute against a supplier.
  • The company's backlog was $43.1 million at the end of the quarter, which is up more than 83% compared with the year-ago period.
Silhouette of an offshore oil drilling rig with the sun setting in the background.

Image source: Getty Images.

What management had to say 

CEO Steven Pickett commented on the company's results, stating:

Once again, RigNet delivered solid operating results, growing total revenue in the first quarter of 2019 by 7% compared to the first quarter of 2018. Revenue increased in each of our reporting segments and improved adjusted EBITDA 13% year over year. We continue to see increasing data intensity across our customer base, creating more sales opportunities for RigNet's highly differentiated and bundled solutions. The intersection of managed communications, machine learning, and cybersecurity is leading customers to think differently about their digital transformation efforts and they are choosing to partner with RigNet because of the dependency between network performance and the performance of critical business applications.

RigNet's underlying business continues to improve. The company expanded the site count of its managed communication services business thanks to an uptick in drilling activities. On top of that, the company continues to see the adoption of its newer offerings such as machine learning and cybersecurity, which drove healthy growth in its apps & IoT division. The company is benefiting from the increased use of data to drive decisions in the energy sector.

Looking forward 

RigNet is finally starting to see some improvement in the offshore drilling sector. The company signed a three-year contract with an offshore driller to provide managed communications services for that company's current fleet as well as new rigs it may acquire. In addition, RigNet secured contracts to provide services to two offshore oil production platforms in Angola that should start during the third quarter. The company also continued building out its wireless communications capabilities in the U.S. Gulf of Mexico, which it expects to complete during the second quarter. These initiatives, when combined with the continued adoption of its apps & IoT solutions, should help drive continued growth throughout the remainder of the year.