So what: RigNet's revenue slumped 24.5% year over year due to weakness in both of its segments. Telecom systems integration's revenue declined due to reduced activity and a smaller backlog, while its managed services revenue dropped because of decreased spending by oil and gas companies on drilling projects. This weighed on earnings, with quarterly cash earnings slipping 17.7% year over year.
CEO Mark Slaughter pointed out that "reduced customer spending affected our existing business as offshore rigs were stacked and scrapped." Due to a lack of work, offshore drillers such as Atwood Oceanics (NYSE:ATW), for example, are pulling rigs out of service. So far this year, Atwood Oceanics has sold its Atwood Hunter for its scrap value while both the Atwood Mako and the Atwood Manta have been idled until work can be found. Worse yet, CEO Rob Saltiel cautioned on the company's fiscal fourth-quarter conference call that "both rigs [are] facing a substantial period without work." With a growing number of rigs out of work, it's reducing the opportunity for RigNet to earn revenue from the services it had been providing to rigs.
Now what: The offshore industry is in a tough spot right now after oil companies significantly scaled back on activity due to poor returns and weak oil prices. That activity likely won't come back until oil prices are meaningfully higher. During the interim, the weak offshore conditions will impact the earnings potential, and weigh on the stock prices, of both offshore drillers such as Atwood Oceanics as well as offshore services providers like RigNet.