Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” ~~and~~ “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

At ~~October~~July 31, ~~2016,~~2017, there were outstanding ~~17,927,333~~18,225,241 shares of the registrant’s Common Stock.


							June 30,			December 31,
	September 30, 2016			December 31, 2015			2017			2016
	(in thousands, except share amounts)						(in thousands, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	57,239		$	60,468		$	42,699		$	57,152
Restricted cash		141			543			41			139
Accounts receivable, net		54,356			62,105			47,019			48,672
Costs and estimated earnings in excess of billings on uncompleted contracts		2,682			6,757			3,376			2,382
Prepaid expenses and other current assets		11,502			7,142			9,312			10,379

Total current assets		125,920			137,015			102,447			118,724
Property, plant and equipment, net		62,751			72,547			57,475			59,757
Restricted cash		1,500			—			1,500			1,514
Goodwill		22,810			18,058			27,300			21,998
Intangibles, net		17,535			18,974			20,944			16,028
Deferred tax and other assets		14,162			11,522			13,039			12,951

TOTAL ASSETS	$	244,678		$	258,116		$	222,705		$	230,972


LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	7,216		$	6,849		$	10,878		$	9,057
Accrued expenses		17,538			19,946			12,928			12,835
Current maturities of long-term debt		8,515			8,421			8,546			8,478
Income taxes payable		17			3,091			197			877
Deferred revenue		4,772			4,670
Deferred revenue and other current liabilities								8,375			3,625

Total current liabilities		38,058			42,977			40,924			34,872
Long-term debt		60,090			69,238			38,570			52,990
Deferred revenue		324			359			231			254
Deferred tax liability		87			220			655			256
Other liabilities		28,214			22,009			28,274			30,022

Total liabilities		126,773			134,803			108,654			118,394

Commitments and contingencies (Note 12)
Commitments and contingencies (Note 11)
Equity:
Stockholders’ equity
Preferred stock - $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding at September 30, 2016 or December 31, 2015		—			—
Common stock - $0.001 par value; 191,000,000 shares authorized; 17,927,333 and 17,757,945 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively		18			18
Preferred stock - $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding at June 30, 2017 or December 31, 2016								—			—
Common stock - $0.001 par value; 191,000,000 shares authorized; 18,225,241 and 17,932,598 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively								18			18
Treasury stock - 5,516 and no shares at June 30, 2017 and December 31, 2016, respectively, at cost								(116	)		—
Additional paid-in capital		147,326			143,012			153,951			147,906
Accumulated deficit		(13,785	)		(6,043	)		(23,825	)		(17,550	)
Accumulated other comprehensive loss		(15,790	)		(13,836	)		(16,205	)		(17,971	)

Total stockholders’ equity		117,769			123,151			113,823			112,403
Non-redeemable, non-controlling interest		136			162			228			175

Total equity		117,905			123,313			114,051			112,578

TOTAL LIABILITIES AND EQUITY	$	244,678		$	258,116		$	222,705		$	230,972

The accompanying notes are an integral part of the condensed consolidated financial statements.


	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015			Three Months Ended June 30,						Six Months Ended June 30,
	(in thousands, except per share amounts)												2017			2016			2017			2016
													(in thousands, except per share amounts)
Revenue	$	50,612		$	66,318		$	167,864		$	219,074		$	49,162		$	54,911		$	97,234		$	117,252

Expenses:
Cost of revenue (excluding depreciation and amortization)		29,860			38,191			99,412			121,860			33,038			33,276			62,913			69,552
Depreciation and amortization		8,305			8,094			25,561			24,401			7,552			9,013			14,868			17,256
Impairment of goodwill and intangible assets		—			12,592			397			12,592
Impairment of intangible assets														—			397			—			397
Selling and marketing		1,724			2,129			5,559			7,069			2,132			1,943			3,568			3,835
General and administrative		10,476			13,538			39,393			49,823			9,878			13,576			20,390			28,917

Total expenses		50,365			74,544			170,322			215,745			52,600			58,205			101,739			119,957

Operating income (loss)		247			(8,226	)		(2,458	)		3,329
Operating loss														(3,438	)		(3,294	)		(4,505	)		(2,705	)
Other income (expense):
Interest expense		(729	)		(502	)		(2,040	)		(1,521	)		(613	)		(643	)		(1,232	)		(1,311	)
Other income (expense), net		(426	)		(362	)		(397	)		(771	)		(260	)		315			(147	)		29

Income (loss) before income taxes		(908	)		(9,090	)		(4,895	)		1,037
Income tax expense		(540	)		(1,789	)		(2,676	)		(6,738	)
Loss before income taxes														(4,311	)		(3,622	)		(5,884	)		(3,987	)
Income tax benefit (expense)														101			(1,234	)		(313	)		(2,136	)

Net loss		(1,448	)		(10,879	)		(7,571	)		(5,701	)		(4,210	)		(4,856	)		(6,197	)		(6,123	)
Less: Net income attributable to non-redeemable, non-controlling interest		210			65			171			233
Less: Net income (loss) attributable to non-redeemable, non-controlling interest														39			(105	)		78			(39	)

Net loss attributable to RigNet, Inc. stockholders	$	(1,658	)	$	(10,944	)	$	(7,742	)	$	(5,934	)	$	(4,249	)	$	(4,751	)	$	(6,275	)	$	(6,084	)

COMPREHENSIVE LOSS
Net loss	$	(1,448	)	$	(10,879	)	$	(7,571	)	$	(5,701	)	$	(4,210	)	$	(4,856	)	$	(6,197	)	$	(6,123	)
Foreign currency translation		(363	)		(4,595	)		(1,954	)		(5,923	)		905			(2,133	)		1,766			(1,591	)

Comprehensive loss		(1,811	)		(15,474	)		(9,525	)		(11,624	)		(3,305	)		(6,989	)		(4,431	)		(7,714	)
Less: Comprehensive income attributable to non-controlling interest		210			65			171			233
Less: Comprehensive income (loss) attributable to non-controlling interest														39			(105	)		78			(39	)

Comprehensive loss attributable to RigNet, Inc. stockholders	$	(2,021	)	$	(15,539	)	$	(9,696	)	$	(11,857	)	$	(3,344	)	$	(6,884	)	$	(4,509	)	$	(7,675	)


LOSS PER SHARE - BASIC AND DILUTED

Net loss attributable to RigNet, Inc. common stockholders	$	(1,658	)	$	(10,944	)	$	(7,742	)	$	(5,934	)	$	(4,249	)	$	(4,751	)	$	(6,275	)	$	(6,084	)

Net loss per share attributable to RigNet, Inc. common stockholders, basic	$	(0.09	)	$	(0.62	)	$	(0.44	)	$	(0.34	)	$	(0.24	)	$	(0.27	)	$	(0.35	)	$	(0.35	)

Net loss per share attributable to RigNet, Inc. common stockholders, diluted	$	(0.09	)	$	(0.62	)	$	(0.44	)	$	(0.34	)	$	(0.24	)	$	(0.27	)	$	(0.35	)	$	(0.35	)


Weighted average shares outstanding, basic		17,782			17,567			17,677			17,510			17,985			17,634			17,929			17,624


Weighted average shares outstanding, diluted		17,782			17,567			17,677			17,510			17,985			17,634			17,929			17,624

The accompanying notes are an integral part of the condensed consolidated financial statements.


	Nine Months Ended September 30,						Six Months Ended June 30,
	2016			2015			2017			2016
	(in thousands)						(in thousands)
Cash flows from operating activities:
Net loss	$	(7,571	)	$	(5,701	)	$	(6,197	)	$	(6,123	)
Adjustments to reconcile net loss to net cash provided by operations:
Depreciation and amortization		25,561			24,401			14,868			17,256
Impairment of goodwill and intangible assets		397			12,592
Impairment of intangible assets								—			397
Stock-based compensation		2,708			2,955			1,942			1,842
Amortization of deferred financing costs		132			129			151			85
Deferred taxes		(1,461	)		(419	)		74			(1,627	)
Change in fair value of contingent consideration and accretion of discount for acquisition of Tecnor		(901	)		—
Gain on sales of property, plant and equipment, net of retirements		(164	)		(23	)
Change in fair value of earn-out/contingent consideration								(846	)		—
Accretion of discount of contingent consideration payable for acquisitions								272			234
(Gain) loss on sales of property, plant and equipment, net of retirements								50			(150	)
Changes in operating assets and liabilities, net of effect of acquisition:
Accounts receivable		10,498			7,318			1,777			13,676
Costs and estimated earnings in excess of billings on uncompleted contracts		4,078			(3,609	)		(894	)		4,670
Prepaid expenses and other assets		(4,927	)		(890	)		909			(2,727	)
Accounts payable		(475	)		(3,116	)		(24	)		(2,777	)
Accrued expenses		(5,741	)		(10,984	)		(1,034	)		(5,952	)
Deferred revenue		67			(180	)		5,325			(1,161	)
Other liabilities		553			4,572			(7,090	)		797

Net cash provided by operating activities		22,754			27,045			9,283			18,440


Cash flows from investing activities:
Acquisition of Orgtec S.A.P.I. de C.V., d.b.a. Tecnor		(4,841	)		—
Acquisition of Cyphre Security Solutions and Orgtec S.A.P.I. de C.V., d.b.a. Tecnor, respectively								(4,900	)		(4,841	)
Capital expenditures		(11,152	)		(21,885	)		(6,522	)		(9,430	)
Proceeds from sales of property, plant and equipment		205			131			247			183
(Increase) decrease in restricted cash		(1,098	)		447
Increase (decrease) in restricted cash								112			(1,255	)

Net cash used in investing activities		(16,886	)		(21,307	)		(11,063	)		(15,343	)


Cash flows from financing activities:
Proceeds from issuance of common stock		1,606			988			683			644
Subsidiary distributions to non-controlling interest		(197	)		(314	)		(25	)		(123	)
Repayments of long-term debt		(9,420	)		(6,479	)		(14,503	)		(4,280	)
Payment of financing fees		(100	)		—			—			(100	)
Excess tax benefits from stock-based compensation		—			281

Net cash used in financing activities		(8,111	)		(5,524	)		(13,845	)		(3,859	)

Net increase (decrease) in cash and cash equivalents		(2,243	)		214

Net decrease in cash and cash equivalents								(15,625	)		(762	)

Cash and cash equivalents:
Balance, January 1,		60,468			66,576			57,152			60,468
Changes in foreign currency translation		(986	)		(1,995	)		1,172			(250	)


Balance, September 30,	$	57,239		$	64,795

Balance, June 30,							$	42,699		$	59,456

Supplemental disclosures:
Income taxes paid	$	5,890		$	7,470		$	1,103		$	4,910
Interest paid	$	1,527		$	1,405		$	873		$	991
Property, plant and equipment acquired under capital leases	$	335
Non-cash investing - capital expenditures accrued	$	653		$	2,739		$	3,595		$	969
Non-cash investing - contingent earn-out liability for Tecnor acquisition	$	5,553		$	—
Liabilities assumed - Tecnor acquisition	$	2,408		$	—
Non-cash investing - tenant improvement allowance							$	1,728		$	—
Non-cash investing - contingent consideration for acquisitions							$	3,798		$	6,425
Non-cash investing and financing - stock for Cyphre Security Solutions							$	3,304		$	—
Liabilities assumed in acquisitions							$	100		$	2,408

The accompanying notes are an integral part of the condensed consolidated financial statements.


	Common Stock					Additional Paid-In Capital			Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Loss				Total Stockholders’ Equity				Non-Redeemable, Non-Controlling Interest			Total Equity				Common Stock							Treasury Stock						Additional Paid-In		Accumulated			Accumulated Other Comprehensive			Total Stockholders’			Non-Redeemable, Non-Controlling
	Shares			Amount
	(in thousands)
Balance, January 1, 2015		17,630		$	18	Additional Paid-In Capital	$	137,662	Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Loss			$	Total Stockholders’ Equity			10,931	Non-Redeemable, Non-Controlling Interest			Total Equity			$	(6,682	)		$	141,929		$	162		$	142,091

Issuance of common stock upon the exercise of stock options		76			—		988			—			—				988				—			988

Issuance of restricted common stock, net of share cancellations		51			—		—			—			—				—				—			—

Stock-based compensation		—			—		2,955			—			—				2,955				—			2,955

Excess tax benefits from stock-based compensation		—			—		281			—			—				281				—			281

Foreign currency translation		—			—		—			—			(5,923	)			(5,923	)			—			(5,923	)

Non-controlling owner distributions		—			—		—			—			—				—				(314	)		(314	)

Net income (loss)		—			—		—			(5,934	)		—				(5,934	)			233			(5,701	)


Balance, September 30, 2015		17,757		$	18	$	141,886		$	4,997		$	(12,605	)		$	134,296			$	81		$	134,377
																											Shares				Amount			Shares			Amount			Capital		Deficit			Loss			Equity			Interest			Total Equity
																											(in thousands)
Balance, January 1, 2016		17,758		$	18	$	143,012		$	(6,043	)	$	(13,836	)		$	123,151			$	162		$	123,313				17,758			$	18			—		$	—		$	143,012	$	(6,043	)	$	(13,836	)	$	123,151		$	162		$	123,313
Issuance of common stock upon the exercise of stock options		213			—		1,606			—			—				1,606				—			1,606				81				—			—			—			644		—			—			644			—			644
Restricted common stock cancellations		(44	)		—		—			—			—				—				—			—				(33	)			—			—			—			—		—			—			—			—			—
Stock-based compensation		—			—		2,708			—			—				2,708				—			2,708				—				—			—			—			1,842		—			—			1,842			—			1,842

Foreign currency translation		—			—		—			—			(1,954	)			(1,954	)			—			(1,954	)			—				—			—			—			—		—			(1,591	)		(1,591	)		—			(1,591	)

Non-controlling owner distributions		—			—		—			—			—				—				(197	)		(197	)			—				—			—			—			—		—			—			—			(123	)		(123	)

Net income (loss)		—			—		—			(7,742	)		—				(7,742	)			171			(7,571	)			—				—			—			—			—		(6,084	)		—			(6,084	)		(39	)		(6,123	)

Balance, June 30, 2016																												17,806			$	18			—		$	—		$	145,498	$	(12,127	)	$	(15,427	)	$	117,962		$	—		$	117,962

Balance, September 30, 2016		17,927		$	18	$	147,326		$	(13,785	)	$	(15,790	)		$	117,769			$	136		$	117,905
Balance, January 1, 2017																												17,933			$	18			—		$	—		$	147,906	$	(17,550	)	$	(17,971	)	$	112,403		$	175		$	112,578
Issuance of common stock upon the exercise of stock options																												57				—			—			—			799		—			—			799			—			799
Issuance of common stock upon the vesting of Restricted Stock Units, net of share cancellations																												49				—			—			—			—		—			—			—			—			—
Issuance of common stock upon the acquisition of Cyphre																												192				—			—			—			3,304		—			—			3,304			—			3,304
Stock witheld to cover employee taxes on stock-based compensation																												(6	)			—			6			(116	)		—		—			—			(116	)		—			(116	)
Stock-based compensation																												—				—			—			—			1,942		—			—			1,942			—			1,942
Foreign currency translation																												—				—			—			—			—		—			1,766			1,766			—			1,766
Non-controlling owner distributions																												—				—			—			—			—		—			—			—			(25	)		(25	)
Net income (loss)																												—				—			—			—			—		(6,275	)		—			(6,275	)		78			(6,197	)

Balance, June 30, 2017																												18,225			$	18			6		$	(116	)	$	153,951	$	(23,825	)	$	(16,205	)	$	113,823		$	228		$	114,051

The accompanying notes are an integral part of the condensed consolidated financial statements.

The interim unaudited condensed consolidated financial statements of RigNet, Inc. (the Company or RigNet) include all adjustments which, in the opinion of management, are necessary for a fair presentation of the Company’s financial position and results of operations. All such adjustments are of a normal recurring nature. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and Rule 10-01 of Regulation S-X. The preparation of these financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying footnotes. Estimates and assumptions about future events and their effects cannot be perceived with certainty. Estimates may change as new events occur, as more experience is acquired, as additional information becomes available and as the Company’s operating environment changes. Actual results could differ from estimates. These interim financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, ~~2015~~2016 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on ~~February 29, 2016.~~

Subsequent to the issuance of the Company’s September 30, 2015 condensed consolidated financial statements, the Company identified a misclassification in the presentation of operating expenses between selling and marketing expense and general and administrative expense in the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2015. This error resulted in the understatement of selling and marketing expense of $0.5 million and $2.0 million for the three and nine months ended September 30, 2015, respectively, and an offsetting overstatement of general and administrative expense, in the same amounts. The prior period amounts have been revised to reflect the correct classification. The correction had no impact on total expenses or net loss for the three and nine months ended September 30, 2015.March 6, 2017.

Please refer to RigNet’s Annual Report on Form 10-K for fiscal year ~~2015~~2016 for information regarding the Company’s accounting policies.

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers (Topic 606). The core principle of this amendment is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued Accounting Standards Update No. 2015-14 (ASU 2015-14), Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. In March 2016, the FASB issued Accounting Standards Update No. 2016-08 (ASU 2016-08), Revenue from Contracts with Customers: Principal versus Agent Considerations. The amendments are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. In April and May of 2016, the FASB issued Accounting Standards Update No. 2016-10 (ASU 2016-10) and Accounting Standards Update No. 2016-12 (ASU 2016-12), Revenue from Contracts with Customers (Topic 606), respectively, that provide scope amendments, performance obligations clarification and practical expedients. These ASUs allow for the use of either the full or modified retrospective transition method and are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, with early adoption permitted for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company ~~is currently in the process of evaluating the impact~~will adopt this ASU on January 1, 2018. The Company does not expect the adoption of this ASU ~~will~~to have ~~on the Company’s condensed consolidated financial statements.~~

In April 2015, the FASB issued Accounting Standards Update No. 2015-03 (ASU 2015-03), Interest - Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs (Topic 835), which requires that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the carrying amount of the related debt liability, consistent with debt discounts. In August 2015, the FASB issued Accounting Standards Update No. 2015-15 (ASU 2015-15), in which the SEC staff clarified its position on presenting and measuring debt issuance costs in connection with line of credit arrangements. The SEC staff would not object to deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line of credit arrangement. ASU 2015-03 became effective for annual and interim periods for fiscal years beginning after December 15, 2015. Early adoption was permitted. The Company adopted ASU 2015-03 as of January 1, 2016. The adoption of ASU 2015-03 did not have anymaterial impact on ~~the Company’s condensed consolidated financial statements.~~

In September 2015, the FASB issued Accounting Standards Update No. 2015-16 (ASU 2015-16), Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. This new standard specifies that an acquirer should recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined, eliminating the current requirement to retrospectively account for these adjustments. Additionally, the full

effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts should be recognized in the same period as the adjustments to the provisional amounts. The Company adopted ASU 2015-16 as of January 1, 2016. The adoption of ASU 2015-16 did not have any impact on the Company’sits condensed consolidated financial statements.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02), Leases. This ASU is effective for annual reporting periods beginning after December 15, 2018. This ASU introduces a new lessee model that generally ~~requires reflection of~~brings leases on the balance sheet. The Company is currently in the process of evaluating the impact the adoption of this ASU will have on the Company’s condensed consolidated financial statements.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09 (ASU 2016-09), Share Based Compensation. The new ASU simplifies several aspects of share based compensation including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This ASU is effective for reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company adopted ASU 2016-09 in the second quarter of 2016 and ~~have~~has applied the guidance as of January 1, 2016. The adoption of this ASU did not have a material impact on the Company’s condensed consolidated financial statements.

In August 2016, the FASB issued Accounting Standards Update No. 2016-15 (ASU 2016-15), Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The new ASU reduces diversity of practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics, including the treatment of contingent consideration payments made after a business combination. ~~This~~The ASU is effective for annual and interim reporting periods beginning after December 15, 2017. Early adoption is permitted. The Company is currently in the process of evaluating the impact the adoption of this ASU will have on the Company’s condensed consolidated financial statements.

In November 2016, the FASB issued Accounting Standards Update No. 2016-18 (ASU 2016-18), which includes restricted cash in the cash and cash equivalents balance in the statement of cash flows. The ASU is effective for annual and interim reporting periods beginning after December 15, 2017. The Company is currently in the process of evaluating the impact the adoption of this ASU will have on the Company’s consolidated financial statements.

On July 28, 2017, RigNet acquired substantially all the assets of Energy Satellite Services (ESS). ESS is a supplier of wireless communications services via satellite networks primarily to the midstream sector of the oil and gas industry. The assets acquired enhance RigNet’s product offering, add to the Company’s existing midstream Supervisory Control and Data Acquisition (SCADA) customer portfolio, and strengthen the Company’s US land and Internet-of-Things (IoT) market position. The Company has paid approximately $22.2 million in cash for the ESS assets. ESS is based in Texas.

For the six months ended June 30, 2017, RigNet incurred $0.2 million, of acquisition-related costs, which are reported as general and administrative expense in the Company’s Condensed Consolidated Statements of Comprehensive Loss. Additional costs related to this acquisition will be incurred and recorded as expense during the remainder of 2017.

Due to the limited time since the acquisition date, the initial purchase accounting for the business combination is incomplete at this time. As a result, the Company is unable to provide amounts recognized as of the acquisition date for major classes of assets and liabilities acquired and resulting from the transaction, including any intangible assets or goodwill. The Company is also unable to provide supplemental pro forma revenue and earnings of the combined entity. This information will be included in the Company’s Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2017.

On July 24, 2017, RigNet acquired substantially all the assets of Data Technology Solutions (DTS). DTS provides comprehensive communications and IT services to the onshore, offshore, and maritime industries, as well as disaster relief solutions to global corporate clients. The Company has paid approximately $5.2 million in cash for the DTS assets. DTS is based in Louisiana.

For the six months ended June 30, 2017, RigNet incurred $0.1 million, of acquisition-related costs, which are reported as general and administrative expense in the Company’s Condensed Consolidated Statements of Comprehensive Loss. Additional costs related to this acquisition will be incurred and recorded as expense during the remainder of 2017.

On May 18, 2017, RigNet completed its acquisition of Cyphre Security Solutions (Cyphre) for an estimated aggregate purchase price of $12.0 million. Of this aggregate purchase price, RigNet paid $4.9 million in cash in May 2017, $3.3 million in stock and expects to pay $3.8 million of contingent consideration for intellectual property, estimated as of the date of acquisition. The initial estimate of the contingent consideration for intellectual property is preliminary and remains subject to change based on certain post-closing contractual options under the acquisition agreement. Cyphre is a cybersecurity company that provides advanced enterprise data protection leveraging BlackTIE^® hardware-based encryption featuring low latency protection for files at rest and in transit for both public and private cloud. Cyphre is based in Texas.

The contingent consideration for Cyphre is measured at fair value, based on level 3 inputs, with any change to fair value recorded in the Condensed Consolidated Statements of Comprehensive Loss in each reporting period. As of June 30, 2017, the fair value of the contingent consideration was $3.8 million. During the three and six months ended June 30, 2017, RigNet recognized accreted interest expense on the Cyphre contingent consideration of $0.1 million with corresponding increases to other liabilities.

The assets and liabilities of Cyphre have been recorded at their estimated fair values at the date of acquisition. The excess of the purchase price over the estimated fair values of the underlying net tangible and identifiable intangible assets and liabilities has been recorded as goodwill.

The goodwill of $4.6 million arising from the acquisition consists largely of growth prospects, synergies and other benefits that the Company believes will result from combining the operations of the Company and Cyphre, as well as other intangible assets that do not qualify for separate recognition, such as assembled workforce in place at the date of acquisition. The goodwill recognized is expected to be deductible for income tax purposes. The acquisition of Cyphre, including goodwill, is included in the Company’s condensed consolidated financial statements as of the acquisition date and is reflected in the Managed Services segment.

For the six months ended June 30, 2017, RigNet incurred $0.4 million, of acquisition-related costs, which are reported as general and administrative expense in the Company’s Condensed Consolidated Statements of Comprehensive Loss.

Cyphre’s revenue and net loss were zero and $0.3 million, respectively, for the three and six months ended June 30, 2017.

On February 4, 2016, RigNet completed its acquisition of Orgtec S.A.P.I. de C.V., d.b.a. TECNOR (TECNOR) for an estimated aggregate purchase price of $11.4 million. Of this aggregate purchase price, RigNet paid $4.8 million in cash in February 2016, paid $0.1 million ~~in escrow~~ for final net working capital and expected to pay a $6.5 million contingent consideration earn-out, estimated as of the date of acquisition. The initial estimate of the earn-out payable iswas preliminary and remains subject to change based on the achievement of certain post-closing performance targets under the acquisition agreement. The maximum earn-out is $21.3 million. TECNOR provides telecommunications solutions for remote sites on land, sea and air, including a wide array of equipment, voice and data services, satellite coverage and bandwidth options in Mexico. These services are provided to industrial, commercial and private users in diverse activity segments including mission critical military and government applications, oil and gas operations, commercial fishing and leisure. TECNOR is based in Monterrey, Mexico.

The assets and liabilities of TECNOR have been recorded at their estimated fair values at the date of acquisition. The excess of the purchase price over the estimated fair values of the underlying net tangible and identifiable intangible assets and liabilities has been recorded as goodwill. ~~The Company’s allocation of the purchase price is preliminary as the amounts are still being finalized.~~

The earn-out for TECNOR is measured at fair value, based on level 3 inputs, with any change to fair value recorded in the Condensed Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss in each reporting period. As of ~~September~~June 30, ~~2016,~~2017, the fair value of the earn-out was ~~$5.6~~$5.1 million. There was a ~~$1.3~~$0.8 million reduction in fair value to the TECNOR earn-out for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 recorded as a reduction of other current liabilities and a decrease to general and administrative expense in the Corporate segment. The change in fair value was due to a ~~change in~~ forecast of TECNOR’s future achievement of the post-closing performance targets. ~~Additionally, during~~During the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, RigNet recognized accreted interest expense on the TECNOR earn-out liability of ~~$0.2~~$0.1 million and ~~$0.4~~$0.2 million, respectively, with corresponding increases to other current liabilities. The earn-out is payable in 2018.

The goodwill of $6.5 million arising from the acquisition consists largely of growth prospects, synergies and other benefits that the Company believes will result from combining the operations of the Company and TECNOR, as well as other intangible assets that do not qualify for separate recognition, such as assembled workforce in place at the date of acquisition. None of the goodwill recognized is expected to be deductible for income tax purposes. The acquisition of TECNOR, including goodwill, is included in the Company’s condensed consolidated financial statements as of the acquisition date and is reflected in the ~~Western Hemisphere~~Managed Services segment.


	Weighted Average Estimated Useful Life (Years)		Fair Market Values					Weighted Average Estimated Useful Life (Years)		Fair Market Values
			(in thousands)					(in thousands)
Accounts Receivable					$	2,672						$	2,672
Other assets						1,280							1,280
Property and equipment						809							809
Backlog		2.0		366					2		366
Customer Relationships		7.0		2,210					7		2,210

Total identifiable intangible assets						2,576							2,576
Goodwill						6,465							6,465
Accounts Payable						(1,914	)						(1,914	)
Accrued Expenses						(494	)						(494	)

Total purchase price					$	11,394	(a)					$	11,394	(a)

For the ~~nine~~three and six months ended ~~September~~June 30, 2016, RigNet incurred $0.1 million and $0.2 million, respectively, of acquisition-related costs, which are reported as general and administrative expense in the Company’s Condensed Consolidated Statements of Comprehensive ~~Income (Loss).~~Loss.

TECNOR’s revenue and net ~~loss~~income were ~~$2.0~~$3.0 million and ~~$0.7~~$0.2 million, respectively, for the three months ended ~~September~~June 30, 2016. TECNOR’s revenue and net ~~loss~~income were ~~$7.1~~$5.1 million and ~~$0.1~~$0.6 million, respectively, for the ~~period from February 4, 2016 to September~~six months ended June 30, 2016.

The following table represents supplemental pro forma information as if the TECNOR acquisition had occurred on January 1, ~~2015.~~2016. Pro forma adjustments include:

The Company is exposed to various business and credit risks including interest rate, foreign currency, credit and liquidity risks.

The Company has significant interest-bearing liabilities at variable interest rates which generally price monthly. The Company’s variable borrowing rates are tied to LIBOR resulting in interest rate risk (see Note 6 – Long-Term Debt). The Company presently does not use financial instruments to hedge ~~these risks,~~interest rate risk, but evaluates ~~financial risk~~this on a regular basis and may utilize financial instruments in the future if deemed necessary.

The Company has exposure to foreign currency risk, as a portion of the Company’s activities are conducted in currencies other than U.S. dollars. Currently, the Norwegian kroner and the British pound sterling ~~and the Australian dollar~~ are the currencies that could materially impact the Company’s financial position and results of operations. The Company presently does not hedge these risks, but evaluates financial risk on a regular basis and may utilize financial instruments in the future if deemed necessary. Foreign currency translations are reported as accumulated other comprehensive ~~income (loss)~~loss in the Company’s condensed consolidated financial statements.

Credit risk, with respect to accounts receivable, is due to the limited number of customers concentrated in the oil and gas industry. The Company mitigates the risk of financial loss from defaults through defined collection terms in each contract or service agreement and periodic evaluations of the collectability of accounts receivable. The Company provides an allowance for doubtful accounts which is adjusted when the Company becomes aware of a specific customer’s inability to meet its financial obligations or as a result of changes in the overall aging of accounts receivable.

The Company maintains cash and cash equivalent balances with major financial institutions which, at times, exceed federally insured limits. The Company monitors the financial condition of the financial institutions and has not experienced losses associated with these accounts during ~~2016~~2017 or ~~2015.~~2016. Liquidity risk is managed by continuously monitoring forecasted and actual cash flows and by matching the maturity profiles of financial assets and liabilities (see Note 6 – Long-Term Debt).

Goodwill resulted from prior acquisitions as the consideration paid for the acquired businesses exceeded the fair value of acquired identifiable net tangible and intangible assets. Goodwill is reviewed for impairment at least annually with additional evaluations being performed when events or circumstances indicate that the carrying value of these assets may not be recoverable.

The Company acquired $4.6 million of goodwill in the Cyphre acquisition completed on May 18, 2017 (see Note 2 – Business Combinations).

The Company acquired $6.5 million of goodwill in the TECNOR acquisition completed on February 4, 2016 (see Note 2 – Business Combinations).

The Company performs its annual impairment test on July 31^stof each year, with the most recent annual test being performed as of July 31, 2016. The July 2016 annual test resulted in no impairment as the fair value of each reporting unit exceeded the carrying value plus goodwill of that reporting unit. No impairment indicators have been identified ~~through September 30, 2016.~~

~~The July 2015 annual test resulted~~ in ~~a full $10.9 million impairment of goodwill in the North America Land~~any reporting unit which reports through the Western Hemisphere segment. This impairment resulted from reduced internal cash flow projections for the North America Land reporting unit which has been adversely impacted by a significant decline in U.S. land rig counts sinceas of June 30, 2017 and December ~~2014. The July 2015 annual test resulted in no impairment to the remaining goodwill as the fair value of each other reporting unit continued to exceed the carrying value plus goodwill.~~31, 2016.

As of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, goodwill was ~~$22.8~~$27.3 million and ~~$18.1~~$22.0 million, respectively. ~~In addition to additions from acquisition, goodwill~~Goodwill increases or decreases in value due to the effect of foreign currency ~~translation.~~

Intangibles consist of customer relationships, ~~(acquired~~brand name, technology, backlog and licenses acquired as part of the Nessco, Inmarsat’s Enterprise Energy business unit and TECNOR acquisitions), as well as trade name (acquired as part of the Nessco acquisition), backlog (acquired as part of the TECNOR acquisitions), licenses (acquired primarily as part of the Inmarsat’s Enterprise Energy business unit acquisition) andCompany’s acquisitions. Intangibles also include internal-use software. The Company’s intangibles have useful lives ranging from 1.7 to ~~9.0~~7.0 years and are amortized on a straight-line basis. Impairment testing is performed when events or circumstances indicate that the carrying value of the assets may not be recoverable.

In June 2016, the Company identified a triggering event for a license in Kazakhstan associated with a decline in cash flow projections. In June 2016, the Company conducted an intangibles impairment test and as a result of such test, recognized a $0.4 million impairment of licenses in the Corporate segment, which was the full amount of the Company’s intangibles within Kazakhstan.

In July 2015, the Company identified a triggering event in the North America Land reporting unit associated with a significant decline in U.S. land rig counts since December 2014. This circumstance resulted in a reduction in the Company’s cash flow projections during the revision of internal forecasts. In July 2015, the Company conducted an intangibles impairment test and as a result of such test, recognized a $1.7 million impairment of customer relationships, the full amount of intangibles within the North America Land reporting unit, which reports through the Western Hemisphere segment.

~~Except as noted above, no other~~No impairment indicators have been identified in any reporting unit as of ~~September~~June 30, ~~2016.~~2017.

As of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, intangibles were ~~$17.5~~$20.9 million and ~~$19.0~~$16.0 million, respectively. During the three months ended ~~September~~June 30, ~~2016~~2017 and ~~2015,~~2016, the Company recognized amortization expense of $1.5 million and $1.3 ~~million.~~million, respectively. During the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015,~~2016, the Company recognized amortization expense of ~~$3.9~~$2.8 million and ~~$4.2~~$2.6 million, respectively.

The following table sets forth expected amortization expense of intangibles for the remainder of ~~2016~~2017 and the following years (in thousands):


2016		1,113
2017		4,454		2,630
2018		4,301		4,984
2019		3,295		3,974
2020		2,366		3,065
2021				2,772
Thereafter		2,006		3,519

	$	17,535	$	20,944

As of ~~September~~June 30, ~~2016 and December 31, 2015,~~2017, the Company had restricted cash of $0.1 million and ~~$0.5~~$1.5 million, in current and long-term assets, respectively. ~~The restricted cash in current assets as of September 30, 2016 is primarily escrow for the TECNOR acquisition final working capital adjustment. The restricted cash in current assets as~~As of December 31, ~~2015 is primarily used to collateralize outstanding performance bonds for Nessco’s telecoms systems integration projects which were in effect prior to RigNet acquiring Nessco.~~

~~As of September 30,~~ 2016, the Company had restricted cash of $0.1 million and $1.5 million, in current and long-term ~~assets.~~assets, respectively. The restricted cash in long-term assets iswas primarily used to collateralize a performance bond in the ~~Eastern Hemisphere segment (see Note 6 – Long-Term Debt).~~Managed

Services segment (see Note 6 – Long-Term Debt). The restricted cash in current assets as of December 31, 2016 was an escrowed portion of the purchase price for the acquisition of TECNOR.

As of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, the following credit facilities and long-term debt arrangements with financial institutions were in place:


	September 30,			December 31,			June 30,			December 31,
	2016			2015			2017			2016
	(in thousands)						(in thousands)
Term loan, net of unamortized deferred financing costs	$	36,147		$	42,536		$	29,859		$	34,053
Revolving loan		32,000			35,000			17,000			27,000
Capital lease		458			123			257			415

		68,605			77,659			47,116			61,468
Less: Current maturities of long-term debt		(8,393	)		(8,421	)		(8,412	)		(8,399	)
Current maturities of capital lease		(122	)		—			(134	)		(79	)

	$	60,090		$	69,238		$	38,570		$	52,990

The Company has a term loan (Term Loan) issued under the second amended and restated credit agreement with four participating financial institutions (credit agreement). On October 3, 2013, the Company amended its Term Loan, which increased the principal balance to $60.0 million from $54.6 million and extended the maturity of the loan from July 2017 to October 2018.

The amended Term Loan bears an interest rate of LIBOR plus a margin ranging from 1.5% to 2.5% based on a ratio of funded debt to Consolidated EBITDA, a non-GAAP financial measure as defined in the credit agreement. Interest is payable monthly along with quarterly principal installments of $2.1 million, with the balance due October 2018. The weighted average interest rate for the three months ended ~~September~~June 30, 2017 and 2016 was 3.1% and ~~2015 was 2.5% and 2.0%~~2.4%, respectively. The weighted average interest rate for the ~~nine~~six months ended ~~September~~June 30, 2017 and 2016 was 3.1% and ~~2015 was 2.4% and 2.0%~~2.3%, respectively, with an interest rate of ~~2.5%~~3.2% at ~~September~~June 30, ~~2016.~~2017.

The Term Loan is secured by substantially all the assets of the Company. As of ~~September~~June 30, ~~2016,~~2017, the Term Loan had an outstanding principal balance of ~~$36.5~~$30.0 million.

Under the credit agreement, the Company maintains a ~~$125.0~~$75.0 million revolving credit facility, which includes a $15 million sublimit for the issuance of standby letters of credit. As of ~~September~~June 30, ~~2016, $32.0~~2017, $17.0 million in draws remain ~~outstanding.~~outstanding on the revolving credit facility. The revolving credit facility matures in October 2018 with any outstanding borrowings then payable. As of June 30, 2017, there were $6.3 million in standby letters of credit issued.

~~Borrowings under the~~The revolving ~~credit facility bear~~loan bears an interest rate of LIBOR plus a margin ranging from 1.5% to 2.5% based on a ratio of funded debt to Consolidated EBITDA, a non-GAAP financial measure as defined in the credit agreement. The weighted average interest rate for the three months ended ~~September~~June 30, 2017 and 2016 was 3.1% and ~~2015 was 2.5% and 2.0%~~2.3%, respectively. The weighted average interest rate for the ~~nine~~six months ended ~~September~~June 30, 2017 and 2016 was 3.1% and ~~2015 was 2.4% and 2.0%~~2.3%, respectively, with an interest rate of ~~2.5%~~3.2% at ~~September~~June 30, ~~2016.~~2017.

On September 14, 2012, NesscoInvsat Limited, a subsidiary of RigNet, secured a performance bond facility with a lender in the amount of £4.0 million, or $5.2 million. This facility has a maturity date of October 3, 2018. As of June 30, ~~2017. As of September 30, 2016,~~2017, the amount available under this facility was ~~£1.6~~£2.0 million or ~~$2.1~~$2.6 million. As of June 30, 2017, there were $5.6 million in standby letters of credit issued to collateralize this performance bond facility.

In June 2016, the Company secured a performance bond facility with a lender in the amount of $1.5 million for its ~~Eastern Hemisphere~~Managed Services segment. This facility has a maturity date of June 2021. The Company maintains restricted cash on a dollar for dollar basis to secure this facility.

The Company’s credit agreement contains certain covenants and restrictions, including restricting the payment of cash dividends ~~under default~~ and maintaining certain financial covenants such as a ratio of funded debt to Consolidated EBITDA, a non-GAAP

financial measure as defined in the credit agreement, of less than or equal to 2.5 to 1.0 and a fixed charge coverage ratio of not less than 1.25 to 1.0 as of ~~September~~June 30, ~~2016.~~2017. If any default occurs related to these covenants, the unpaid principal and any accrued interest shall be declared immediately due and payable. As of ~~September~~June 30, ~~2016~~2017, and December 31, ~~2015,~~2016, the Company believes it was in compliance with all ~~covenants.~~covenants in the credit agreement.

In February 2016, the Company amended its credit agreement with the most significant changes being the definition of Consolidated EBITDA, the calculation of the fixed charge coverage ratio and the timing associated with delivery of financial statements and compliance certificates to the administrative agent.

In December 2016, the Company further amended its credit agreement with the most significant changes being voluntarily reducing the revolving credit facility from $125 million to $75 million and changing the definition of Consolidated EBITDA and certain other definitions contained in the credit agreement.

The following table sets forth the aggregate principal maturities of long-term debt, net of deferred financing cost amortization for the remainder of ~~2016~~2017 and the following years (in thousands):


2016	$	2,126
2017		8,636		4,269
2018		57,767		42,771
2019		76		76

Total debt, including current maturities	$	68,605	$	47,116

The Company uses the following methods and assumptions to estimate the fair value of financial instruments:

The Company’s non-financial assets, such as goodwill, intangibles and property, plant and equipment, are measured at fair value, based on level 3 inputs, when there is an indicator of impairment and recorded at fair value only when an impairment charge is recognized.

The earn-out for TECNOR is measured at fair value, based on level 3 inputs, with any change to fair value recorded in the Condensed Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss in each reporting period. As of ~~September~~June 30, 2017, the fair value of the earn-out was $5.1 million. As of December 31, 2016, the fair value of the earn-out was ~~$5.6~~$5.7 million. There was a ~~$1.3~~$0.8 million reduction in fair value to the TECNOR earn-out for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 recorded as a reduction of other current liabilities and a decrease to general and administrative expense in the Corporate segment. The change in fair value was due to a ~~change in~~ forecast of TECNOR’s future achievement of the post-closing performance targets. ~~Additionally, during~~During the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, RigNet recognized accreted interest expense on the TECNOR earn-out liability of ~~$0.2~~$0.1 million and ~~$0.4~~$0.2 million, respectively, with corresponding increases to other liabilities. (see Note 2 – Business Combinations).

The Company’s effective income tax rate was ~~(59.5)%~~2.3% and (5.3%) for the three and six months ended ~~September~~June 30, ~~2016.~~2017, respectively. The Company’s effective income tax rate was ~~(54.7)% for the nine months ended September 30, 2016. The Company’s effective tax rate~~(34.1%) and (53.6%) for the three and ~~nine~~six months ended ~~September~~June 30, 2015 is not meaningful due to the impact of $12.6 million of impairment to goodwill and intangibles and $7.5 million of restructuring charges recorded primarily in domestic operations which significantly decreased the Company’s consolidated pre-tax book income and thus increased the valuation allowance recognized in the period ending September 30, 2015.2016, respectively. The Company’s effective tax rate is affected by factors including changes in valuation allowances, fluctuations in income across jurisdictions with varying tax rates, and changes in income tax reserves, including related penalties and interest.

The Company has computed the provision for taxes for the current and comparative periods using the actual year-to-date effective tax rate. The Company’s financial projections for those periods did not provide the level of detail necessary to calculate a forecasted effective tax rate.

The Company believes that it is reasonably possible that a decrease of up to ~~$0.8~~$3.1 million in unrecognized tax benefits, including related interest and penalties, may be necessary within the coming year due to lapse in statute of limitations. ~~If the tax benefits were recognized the impact to the tax provision would be $0.6 million, which would affect the effective tax rate.~~

The IRS finalized an audit of the Company’s 2013 income tax return in March 2016. There were no assessments or material impact to the Condensed Consolidated Financial Statements as a result the audit.

During the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, the Company granted a total of ~~616,897~~226,974 restricted stock units (RSUs) to certain directors, officers and employees of the Company under the 2010 Omnibus Incentive Plan (2010 Plan). Of these, the Company granted (i) ~~316,017~~125,852 RSUs to certain officers and employees that generally vest over a four year period of continued employment, with 25% of the RSUs vesting on each of the first four anniversaries of the grant date, (ii) ~~156,430~~33,586 RSUs issued to directors that vest in May 2018 and (iii) 67,536 performance share units (PSUs) to certain officers and employees that generally cliff vest on the third anniversary of the grant date, subject to continued employment, (iii) 65,084 RSUs to outside directors that vest in May 2017, and (iv) 79,366 performance based RSUs to certain officers that generally cliff vest on the third anniversary of the grant date and are subject to continued employment and certain performance based targets. The ultimate number of ~~performance based RSUs~~PSUs issued is based on a multiple determined by certain performance based targets.

The fair value of restricted stock units is determined based on the closing trading price of the Company’s common stock on the grant date of the award. Compensation expense is recognized on a straight-line basis over the requisite service period of the entire award.

During the ~~nine~~six months ended ~~September~~June 30, 2016, the Company also granted 100,000 stock options with an exercise price of $12.60 to an officer of the Company under the 2010 Plan. Options granted have a contractual term of ten years and vest over a four year period of continued employment, with 25% of the options vesting on each of the first four anniversaries of the grant date.

The fair value of each stock option award is estimated on the grant date using a Black-Scholes option valuation model, which uses certain assumptions as of the date of grant. The assumptions used for the stock option grants made during the nine months ended September 30, 2016 and 2015, were as follows:

~~Based on these assumptions, the weighted average grant date fair value of stock options granted during the nine months ended September 30, 2016 and 2015 was $6.46 and $13.08 per option.~~

~~During the nine months ended September 30, 2016, 44,262 shares of restricted stock, 127,318~~2017, 63,293 RSUs and ~~309,759~~20,863 stock options were forfeited.

Stock-based compensation expense related to the Company’s stock-based compensation plans for the ~~nine~~six months ended ~~September~~June 30, 2017 and 2016 ~~and 2015~~ was ~~$2.7~~$1.9 million and ~~$3.0~~$1.8 million, respectively. As of ~~September~~June 30, ~~2016,~~2017, there was ~~$8.7~~$9.5 million of total unrecognized compensation cost related to unvested options and restricted stock expected to vest. This cost is expected to be recognized over a remaining weighted-average period of ~~2.5~~2.1 years.

The Company utilized a consulting vendor, KKR Capstone, which performs services exclusively for portfolio companies of Kohlberg Kravis Roberts & Co. L.P. (KKR). KKR is a significant stockholder of the Company. The Company purchased no

consulting services from KKR Capstone in the three and nine months ended September 30, 2016. The Company purchased consulting services in the ordinary course of business totaling $0.3 and $0.5 million from KKR Capstone during the three and nine months ended September 30, 2015, respectively.

Basic earnings (loss) per share (EPS) are computed by dividing ~~net~~ loss attributable to RigNet common stockholders by the number of basic shares outstanding. Basic shares equal the total of the common shares outstanding, weighted for the average days outstanding for the period. Basic shares exclude the dilutive effect of common shares that could potentially be issued due to the exercise of stock options or vesting of restricted stock and RSUs. Diluted EPS is computed by dividing ~~net~~ loss attributable to RigNet common stockholders by the number of diluted shares outstanding. Diluted shares equal the total of the basic shares outstanding and all potentially issuable shares, other than antidilutive shares, if any, weighted for the average days outstanding for the period. The Company uses the treasury stock method to determine the dilutive effect. In periods when a net loss is reported, all common stock equivalents are excluded from the calculation because they would have an anti-dilutive effect, meaning the loss per share would be reduced. Therefore, in periods when a loss is reported, basic and dilutive loss per share are the same.

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, there were approximately ~~1,919,696~~541,964 and ~~1,228,397~~575,214 potentially issuable shares, respectively, excluded from the Company’s calculation of diluted EPS ~~of which 1,033,052 and 1,012,025, respectively, were excluded due to the antidilutive position of the security. The remaining 886,644 and 216,372, respectively,~~that were excluded because the Company incurred a loss in the period and to include them would have been ~~anti-dilutive, meaning the loss per share would be reduced.~~anti-dilutive.

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2015,~~2016, there were approximately ~~648,143~~1,591,554 and ~~547,793,~~1,309,565 potentially issuable shares, respectively, excluded from the Company’s calculation of diluted ~~EPS. Of these, 350,024 and 189,925 shares, respectively, were excluded due to the antidilutive position of the security. The remaining 298,119 and 357,868 shares, respectively,~~EPS that were excluded because the Company incurred a loss in the period and to include them would have been ~~anti-dilutive, meaning the loss per share would be reduced.~~anti-dilutive.

Inmarsat plc (Inmarsat), a satellite telecommunications company, and the Company are in a dispute relating to a January 2014 agreement regarding the purchase by the Company of up to $65.0 million, under certain conditions, of GX capacity from Inmarsat over several years (GX dispute). The parties are attempting to resolve the GX dispute through a contractually stipulated arbitration process that began in October 2016. The parties dispute whether Inmarsat has met its contractual obligations with respect to the service under the agreement. In July 2017, pursuant to its contractual rights under the agreement, the Company delivered a notice of termination of the agreement to Inmarsat.

The Company has incurred legal expenses of $0.5 million in connection with the GX dispute for the six months ended June 30, 2017. The Company may continue to incur significant legal fees, related expenses and management time in the future. The Company cannot predict the ultimate outcome of the GX dispute, the total costs to be incurred or the potential impact on personnel.

Based on the information available at this time and management’s understanding of the GX dispute, the Company does not deem the likelihood of a material loss related to this dispute to be probable, so it has not accrued any liability related to the dispute. At this stage of the arbitration, the range of possible loss is not reasonably estimable, but could range from zero to the maximum amount payable under the contract for the services plus expenses.

The Company, in the ordinary course of business, is a claimant or a defendant in various legal proceedings, including proceedings as to which the Company has insurance coverage and those that may involve the filing of liens against the Company or its assets.

The company is undergoing a routine sales tax audit in a state where it has operations for the period from August of 2011 to May of 2015. It is expected that the audit and the appeals process, if necessary, will be completed within the next nine months. The Company does not ~~consider its exposure~~believe that the outcome of the audit will result in ~~these proceedings, individually or in~~a material impact to the ~~aggregate, to be material.~~consolidated financial statements.

The Company’s ~~Telecoms~~ Systems Integration ~~(TSI)~~and Automation (SI&A) business reached a settlement in the first quarter of 2016 related to a contract dispute associated with a percentage of completion project. The dispute related to the payment for work related to certain change orders. After the settlement, the Company recognized $2.3 million of gain in the ~~nine months ended September 30,~~first quarter of 2016. After the aforementioned settlement and gain, the Company has an accrued loss of $12.0 million for this project, which represents the total evident probable and estimable loss expected to be incurred over the life of this project. In the ~~third quarter of~~Company’s Annual Report on form 10-K for the year ended December 31, 2016, the Company reported that it had received the certificate of final acceptance ~~certificate~~ from the customer acknowledging completion of the project. The total loss incurred over the life of this project ~~with the exception of certain final punch list items. The Company expects remaining estimated project completion costs of $0.4 million, which includes costs~~amounted to ~~complete the final punch list items.~~$11.2 million.

The Company ~~has~~ incurred legal expenses of $0.2 million in connection with the dispute for the ~~nine~~six months ended ~~September~~June 30, 2016.

In 2013, RigNet’s internal compliance program detected potential violations of U.S. sanctions by one of its foreign subsidiaries in connection with certain of its customers’ rigs that were moved into the territorial waters of countries sanctioned by the United States. The Company estimates that it received total revenue of approximately $0.1 million during the period related to the potential violations. The Company has voluntarily self-reported the potential violations to the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) and the U.S. Department of Commerce Bureau of Industry and Security (BIS) and retained outside counsel who conducted an investigation of the matter under the supervision of the Company’s Audit Committee and submitted a report to OFAC and BIS.

~~The Company incurred legal expenses of $0.1 million in connection with the investigation for the nine months ended September 30, 2016 and 2015.~~

In the third quarter of 2016, the Company received a letter from BIS notifying the Company that it had concluded its investigation. BIS assessed no fines or penalties on the Company in connection with the matter. The Company does not anticipate any penalties or fines will be assessed as a result of the matter. As such, the Company has released the previously accrued estimated liability of $0.8 million resulting in a decrease of general and administrative expense for the three and nine months ended September 30, 2016 in the Eastern Hemisphere segment.

The Company leases office space under lease agreements expiring on various dates through ~~2020.~~2025. For the three months ended ~~September~~June 30, ~~2016~~2017 and ~~2015,~~2016, the Company recognized expense under operating leases of ~~$1.2~~$1.0 million and ~~$1.1~~$1.0 million, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015,~~2016, the Company recognized expense under operating leases of ~~$3.4~~$2.0 million and ~~$2.7~~$2.1 million, respectively.

As of ~~September~~June 30, ~~2016,~~2017, future minimum lease obligations for the remainder of ~~2016~~2017 and future years were as follows (in thousands):

On June 30, 2016, the Company provided notice of early termination of its lease with Hartman Ashford Crossing, LLC for office space located at 1880 S. Dairy Ashford, Houston, TX 77077. In accordance with the terms of that lease, the Company exercised its option for early termination, effective February 28, 2017. The total amount of lease termination fees was $0.4 million, which has been paid. The Company has been reimbursed in the third quarter of 2016 by the landlord for construction costs and tenant improvements in the amount of $0.5 million.

In the quarter ended September 30, 2016, the Company assigned the lease for the Company’s former facility located at 309 Apollo Road, Scott, LA 70583. In accordance with the terms of the lease assignment, RigNet has paid $0.1 million in the third quarter of 2016 and will pay $0.1 million in the first quarter of 2017. The Company reversed $0.7 million of a previously accrued liability for lease exit costs and decreased cost of service for $0.7 million in the Corporate segment as a result of assigning this lease contract.

The Company enters into contracts for satellite bandwidth and other network services with certain providers.

As of ~~September~~June 30, ~~2016,~~2017, the Company had the following commercial commitments related to satellite and network services for the remainder of ~~2016~~2017 and the future years thereafter (in thousands):


2016	$	9,360
2017		22,358		5,561
2018		13,495		5,440
2019		16,003		2,152
2020		30,160		693
Thereafter		13,500
2021				676
	$	104,876
			$	14,522

~~RigNet has agreed, under certain conditions, to purchase up to~~The Company is no longer reporting $65.0 million ofin the above table for capacity from Inmarsat’s GX network. Please see paragraph “GX Dispute” above for details of the ~~high-throughput Inmarsat’s Global Xpress (GX) network during~~ongoing arbitration and the ~~five years after it becomes operational. The Company expects~~Company’s notice to ~~utilize GX across RigNet’s legacy operations as well as~~terminate the ~~operations acquired from~~contract with Inmarsat. ~~The portion of this agreement expected to be committed through 2021, assuming the GX network is commercially available in 2016, is reflected in the table above.~~

Segment information is prepared consistent with the components of the enterprise for which separate financial information is available and regularly evaluated by the chief operating decision-maker for the purpose of allocating resources and assessing performance.

~~Certain operating~~The Company previously operated under three reportable segments: Eastern Hemisphere, Western Hemisphere and Telecoms Systems Integration (TSI). During the fourth quarter of 2016 the Company reorganized its business and reportable segments ~~are aggregated into~~on a basis consistent with the revenue streams. The former TSI segment was renamed the Systems Integration and Automation (SI&A) segment. The Managed Services segment consists of the remote communication services that were common between the former Eastern Hemisphere and Western Hemisphere segments as well as certain global Managed Services specific costs including the Network Operations Center (NOC) and engineering costs that in prior years were included in the Corporate segment. The Company now operates Managed Services as one global segment. All historical segment ~~based on similar economic characteristics. Accordingly,~~ financial data included herein has been recast to conform to the current year presentation.

Corporate and eliminations primarily represents unallocated corporate office activities, interest ~~expenses,~~expense, income taxes and eliminations.

The Company’s business segment information as of and for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015,~~2016, is presented below.


	Three Months Ended September 30, 2016														Three Months Ended June 30, 2017
	Eastern Hemisphere		Western Hemisphere			Telecoms Systems Integration			Corporate and Eliminations			Consolidated Total			Managed Services		Systems Integration and Automation			Corporate and Eliminations			Consolidated Total
	(in thousands)														(in thousands)
Revenue	$	27,000	$	20,205		$	3,407		$	—		$	50,612		$	43,055	$	6,107		$	—		$	49,162
Cost of revenue (excluding depreciation and amortization)		14,603		10,849			2,911			1,497			29,860			27,544		5,494			—			33,038
Depreciation and amortization		4,011		2,705			631			958			8,305			6,229		611			712			7,552
Selling, general and administrative		1,593		2,976			499			7,132			12,200			5,272		422			6,316			12,010

Operating income (loss)	$	6,793	$	3,675		$	(634	)	$	(9,587	)	$	247		$	4,010	$	(420	)	$	(7,028	)	$	(3,438	)


Capital expenditures		1,299		637			—			—			1,936			4,266		—			645			4,911

	Three Months Ended September 30, 2015														Three Months Ended June 30, 2016
	Eastern Hemisphere		Western Hemisphere			Telecoms Systems Integration			Corporate and Eliminations			Consolidated Total			Managed Services		Systems Integration and Automation			Corporate and Eliminations			Consolidated Total
	(in thousands)														(in thousands)
Revenue	$	36,235	$	24,578		$	5,505		$	—		$	66,318		$	50,219	$	4,692		$	—		$	54,911
Cost of revenue (excluding depreciation and amortization)		18,103		12,184			5,819			2,085			38,191			29,682		3,594			—			33,276
Depreciation and amortization		3,682		2,892			791			729			8,094			7,585		9			1,419			9,013
Impairment of goodwill and intangible assets		—		12,592			—			—			12,592			—		—			397			397
Selling, general and administrative		3,027		3,454			467			8,719			15,667			7,635		721			7,163			15,519

Operating income (loss)	$	11,423	$	(6,544	)	$	(1,572	)	$	(11,533	)	$	(8,226	)	$	5,317	$	368		$	(8,979	)	$	(3,294	)


Capital expenditures		3,415		1,974			61			621			6,071			4,020		—			650			4,670

	Nine Months Ended September 30, 2016														Six Months Ended June 30, 2017
	Eastern Hemisphere		Western Hemisphere			Telecoms Systems Integration			Corporate and Eliminations			Consolidated Total			Managed Services		Systems Integration and Automation			Corporate and Eliminations			Consolidated Total
	(in thousands)														(in thousands)
Revenue	$	87,581	$	64,264		$	16,019		$	—		$	167,864		$	87,149	$	10,085		$	—		$	97,234
Cost of revenue (excluding depreciation and amortization)		46,742		36,058			11,781			4,831			99,412			54,346		8,567			—			62,913
Depreciation and amortization		11,890		8,142			2,127			3,402			25,561			12,260		1,198			1,410			14,868
Impairment of intangible assets		—		—			—			397			397
Selling, general and administrative		7,580		9,432			2,141			25,799			44,952			10,237		892			12,829			23,958

Operating income (loss)	$	21,369	$	10,632		$	(30	)	$	(34,429	)	$	(2,458	)	$	10,306	$	(572	)	$	(14,239	)	$	(4,505	)


Total assets		120,407		93,332			26,139			4,800			244,678			194,829		16,869			11,007			222,705
Capital expenditures		8,511		1,854			—			1,146			11,511			7,426		—			645			8,071

	Nine Months Ended September 30, 2015														Six Months Ended June 30, 2016
	Eastern Hemisphere		Western Hemisphere			Telecoms Systems Integration			Corporate and Eliminations			Consolidated Total			Managed Services		Systems Integration and Automation			Corporate and Eliminations			Consolidated Total
	(in thousands)														(in thousands)
Revenue	$	113,291	$	79,360		$	26,423		$	—		$	219,074		$	104,640	$	12,612		$	—		$	117,252
Cost of revenue (excluding depreciation and amortization)		54,737		37,852			21,607			7,664			121,860			60,682		8,870			—			69,552
Depreciation and amortization		11,642		8,872			2,329			1,558			24,401			14,774		38			2,444			17,256
Impairment of goodwill and intangible assets		—		12,592			—			—			12,592			—		—			397			397
Selling, general and administrative		10,219		12,334			2,903			31,436			56,892			15,530		1,642			15,580			32,752

Operating income (loss)	$	36,693	$	7,710		$	(416	)	$	(40,658	)	$	3,329		$	13,654	$	2,062		$	(18,421	)	$	(2,705	)


Total assets		151,942		121,597			43,756			(41,834	)		275,461			216,073		29,539			3,209			248,821
Capital expenditures		11,117		7,013			227			3,870			22,227			8,429		—			1,146			9,575

The following table presents revenue earned from the Company’s domestic and international operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015.~~2016. Revenue is based on the location where services are provided or goods are sold. Due to the mobile nature of RigNet’s customer base and the services provided, the Company works closely with its customers to ensure rig or vessel moves are closely monitored to ensure location of service information is properly reflected.


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015		2017		2016		2017		2016
	(in thousands)								(in thousands)
Domestic	$	11,555	$	21,840	$	43,783	$	65,356	$	14,022	$	16,261	$	28,974	$	32,228
International		39,057		44,478		124,081		153,718		35,140		38,650		68,260		85,024

Total	$	50,612	$	66,318	$	167,864	$	219,074	$	49,162	$	54,911	$	97,234	$	117,252

The following table presents goodwill and long-lived assets, net of accumulated depreciation, for the Company’s domestic and international operations as of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015.~~2016.


	September 30,		December 31,		June 30,		December 31,
	2016		2015		2017		2016
	(in thousands)				(in thousands)
Domestic	$	30,706	$	36,506	$	31,317	$	27,682
International		72,390		73,073		74,402		70,101

Total	$	103,096	$	109,579	$	105,719	$	97,783

During the three months ended ~~September~~June 30, 2016, the Company incurred ~~a net~~ pre-tax restructuring expense of ~~$0.8~~$1.1 million ~~reported as general and administrative expense~~ in the ~~Corporate~~corporate segment consisting of ~~$1.8~~$0.7 million of ~~expense~~termination costs associated with the reduction of 7326 employees ~~partially offset by a net $1.0~~and $0.4 million ~~reversal~~ of ~~previously accrued restructuring charges for real estate~~ exit ~~expense not incurred.~~

~~During~~costs from the ~~nine months ended September 30, 2016, the Company incurred net pre-tax restructuring expense of $1.3 million~~corporate office lease. The termination costs are reported as general and administrative expense in the Corporate segment consisting of $2.7 million associated with the reduction of 115 employees partially offset by a net $1.4 million reversal of previously accrued restructuring charges for employees that the Company did not release and real estate exit expense not incurred. The Company anticipates that it will substantially complete the plan by December 31, 2016.

During the nine months ended September 30, 2015, the Company instituted certain resource reallocation and additional cost reduction plans to vacate and eliminate redundant facilities and eliminate certain positions in response to deteriorating oil and gas industry market conditions including declining oil and gas prices, increased stacking and scrapping of rigs and declines in the Baker Hughes U.S. Land Rig Count.

During the nine months ended September 30, 2015, the Company incurred pre-tax expense of approximately $7.5 million in the Corporate segment. The restructuring costs include $3.7 million associated with the reduction of 102 employees, of which $2.7$0.5 million and ~~$1.0~~$0.2 million ~~were reported as~~in general and administrative expense and cost of revenue, respectively, in the Condensed Consolidated Statements of Comprehensive Income (Loss). The ~~restructuring~~$0.4 million of exit costs ~~also include $3.8 million associated with ceasing~~from the ~~use of and vacating six Company facilities, of which $2.3 million and $1.5 million~~lease for the corporate office are reported as general and administrative expense ~~and cost of revenue, respectively,~~ in the Condensed Consolidated Statements of Comprehensive Income (Loss).

During the six months ended June 30, 2016, the Company incurred net pre-tax restructuring expense of $0.5 million in the Corporate segment consisting of $0.4 million of exit costs from the corporate office lease and $0.9 million associated with the reduction of 42 employees partially offset by a net reduction to restructuring charges of $0.8 million due to a reversal of previously accrued restructuring charges for employees that the Company did not release and expense not incurred. The Company undertook ~~these~~restructuring plans in ~~2015 and~~ 2016 to reduce costs and improve the Company’s competitive position.

Marty Jimmerson, the Company’s former CFO, served as Interim CEO and President from January 7, 2016 to May 31, 2016, to replace Mark Slaughter, the prior CEO and President. Mr. Jimmerson departed the Company on June 1, 2016. In connection with the departure of Mr. Slaughter, in the first quarter of 2016 the Company incurred a pre-tax executive departure expense of $1.9 million in the Corporate segment. On May 31, 2016, Steven E. Pickett was named ~~Chief Executive Officer (CEO)~~CEO and President of the Company.

Item 2.Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements as of ~~September~~June 30, ~~2016~~2017 and for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016 included elsewhere herein, and with our annual report on Form 10-K for the year ended December 31, ~~2015.~~2016. The following discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under “Risk Factors” in Item 1A of our annual report and elsewhere in this quarterly report. See “Forward-Looking Statements” below.

This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are subject to a number of risks and uncertainties, many of which are beyond the Company’s control. These statements may include statements about:

In some cases, forward-looking statements can be identified by terminology such as “may,” “could,” “should,” “would,” “expect,” “plan,” “project,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursue,” “target,” “continue,” the negative of such terms or other comparable terminology that convey uncertainty of future events or outcomes. All of these types of statements, other than statements of historical fact included in this Quarterly Report on Form 10-Q, are forward-looking statements.

The forward-looking statements contained in this Quarterly Report on Form 10-Q are largely based on Company expectations, which reflect estimates and assumptions made by Company management. These estimates and assumptions reflect management’s best judgment based on currently known market conditions and other factors. Although the Company believes such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties beyond its control. In addition, management’s assumptions may prove to be inaccurate. The Company cautions that the forward-looking statements contained in this Quarterly Report on Form 10-Q are not guarantees of future performance, and it cannot assure any reader that such statements will be realized or the forward-looking statements or events will occur. Future results may differ materially from those anticipated or implied in forward-looking statements due to factors listed in the “Risk Factors” section of our annual report on Form 10-K for the year ended December 31, ~~2015~~2016 and elsewhere in this Quarterly Report on Form 10-Q. If one or more of these factors materialize, or if any underlying assumptions prove incorrect, our actual future results, performance or achievements may vary materially from any projected future results, performance or achievements expressed or implied by these forward-looking statements.

The forward-looking statements speak only as of the date made, and other than as required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

We are a leading global specialized provider of ~~managed~~customized systems and solutions serving customers with complex data networking and operational requirements. We provide solutions ranging from fully-managed voice and data networks to more advanced applications that include video conferencing and monitoring, crew welfare, asset and weather monitoring and real-time data services under a multi-tenant revenue model. Our customers use our private extranet to manage information flows and execute mission-critical operations primarily in remote areas where conventional telecommunications infrastructure is either unavailable or unreliable. We offer our clients what is often the sole means of communications ~~telecoms systems integration (project management of turn-key engineered telecommunications solutions) and collaborative applications dedicated to the oil and gas industry, focusing on~~for their remote operations, including offshore and onshore drilling rigs, ~~energy~~ production facilities, oilfield service equipment, maritime vessels, midstream assets and maritime. We focus on developing customer relationships in the oil and gas industry resulting in a significant portion of our revenue being concentrated among a number of customers. In addition, due to the concentration of our customers in the oil and gas industry, we face the challenge of service demands fluctuating with the exploration and development plans and capital expenditures of that industry.regional support offices.

Network service customers are primarily served under fixed-price contracts, either on a monthly or day rate basis or for equipment sales. Our contracts are generally in the form of Master Service Agreements, or MSAs, with specific services being provided under individual service orders that have a term of one to three years with renewal options, while land-based locations are generally shorter term or terminable on short notice without a penalty. Service orders are executed under the MSA for individual remote sites or groups of sites, and generally may be terminated early on short notice without penalty in the event of force majeure, breach of the MSA or cold stacking of a drilling rig (when a rig is taken out of service and is expected to be idle for a protracted period of time).

~~Certain operating~~We previously operated our business under three reportable segments: Eastern Hemisphere, Western Hemisphere and Telecoms Systems Integration (TSI). During the fourth quarter of 2016, we reorganized our business and reportable segments ~~are aggregated into~~on a basis consistent with the revenue streams. The former TSI segment was renamed the Systems Integration and Automation (SI&A) segment. The Managed Services segment consists of the remote communication services that were common between the former Eastern Hemisphere and Western Hemisphere segments as well as certain global Managed Services specific costs including our Network Operations Center (NOC) and engineering costs that in prior years were included in the Corporate segment. We now operate Managed Services as one global segment. All historical segment ~~based on similar economic characteristics.~~financial data included herein has been recast to conform to the current year presentation. We now operate ~~three~~two reportable segments, which are managed as distinct ~~business units~~segments by our chief operating decision-maker.

Cost of revenue consists primarily of satellite charges, voice and data termination costs, network operations expenses, internet connectivity fees, equipment purchases for ~~TSI~~SI&A projects and direct service labor. Satellite charges consist of the costs associated with obtaining satellite bandwidth (the measure of capacity) used in the transmission of service to and from leased satellites. Direct service labor consists of field technicians, our ~~Network Operations Center (NOC)~~NOC employees, and other employees who directly provide services to customers. Network operations expenses consist primarily of costs associated with the operation of our NOC, which is maintained 24 hours a day, seven days a week. Depreciation and amortization is recognized on all property, plant and equipment either installed at a customer’s site or held at our corporate and regional offices, as well as intangibles arising from acquisitions and internal use software. Selling and marketing expenses consist primarily of salaries and commissions, travel costs and marketing communications. General and administrative expenses consist of expenses associated with our management, finance, contract, support and administrative functions.

Profitability generally increases or decreases at a site as we add or lose customers and value-added services. Assumptions used in developing the rates for a site may not cover cost variances from inherent uncertainties or unforeseen obstacles, including both physical conditions and unexpected problems encountered with third party service providers.

On ~~February 4, 2016,~~July 28, 2017, we acquired substantially all the assets of Energy Satellite Services (ESS). ESS is a supplier of wireless communications services via satellite networks primarily to the midstream sector of the oil and gas industry. The assets acquired enhance our product offering, add to our existing midstream Supervisory Control and Data Acquisition (SCADA) customer portfolio, and strengthen our US land and Internet-of-Things (IoT) market position. We have paid approximately $22.2 million in cash for the ESS assets. ESS is based in Texas.

On July 24, 2017, we acquired substantially all the assets of Data Technology Solutions (DTS). DTS provides comprehensive communications and IT services to the onshore, offshore, and maritime industries, as well as disaster relief solutions to global corporate clients. We have paid approximately $5.2 million in cash for the DTS assets. DTS is based in Louisiana.

As noted under paragraph GX Dispute below, in July 2017, we delivered a notice of termination of an agreement with Inmarsat to acquire capacity from Inmarsat’s GX network. As a result, the Company will continue to offer other solutions to its customers as it has in the past. The Company will continue to evaluate and make available the best service options for its customers’ telecommunication needs.

On May 18, 2017, we completed our acquisition of ~~Orgtec S.A.P.I. de C.V., d.b.a TECNOR (TECNOR)~~Cyphre Security Solutions (Cyphre) for an estimated aggregate purchase price of ~~$11.4~~$12.0 million. Of this aggregate purchase price, we paid ~~$4.8~~$4.9 million in cash, $3.3 million in stock and expect to pay $3.8 million of ~~cash in February 2016 and paid $0.1 million in escrow for final net working capital and expected to pay a $6.5 million~~ contingent consideration ~~earn-out,~~for intellectual property, estimated as of the date of acquisition. The initial estimate of the ~~earn-out payable~~contingent consideration for intellectual property is preliminary and remains subject to change based on ~~the achievement of~~ certain post-closing ~~performance targets~~contractual options under the acquisition agreement. ~~The maximum earn-out~~Cyphre is ~~$21.3 million. There was~~ a ~~$1.3 million reduction~~cybersecurity company that provides advanced enterprise data protection leveraging BlackTIE^® hardware-based encryption featuring low latency protection for files at rest and in ~~fair value to the TECNOR earn-out~~transit for the three and nine months ended September 30, 2016 recorded as a reduction of other liabilities and a decrease to general and administrative expense in the Corporate segment. The change in fair value is due to a change in forecast of TECNOR’s future achievement of the post-closing performance targets. TECNOR provides telecommunications solutions for remote sites on land, sea and air, including a wide array of equipment, voice and data services, satellite coverage and bandwidth options in Mexico. These services are provided to industrial, commercialboth public and private ~~users in diverse activity segments from mission critical military and government applications, oil and gas operations, commercial fishing and leisure. TECNOR~~cloud. Cyphre is based in ~~Monterrey, Mexico. The acquisition of TECNOR, including goodwill, is included in the Western Hemisphere segment.~~

Between January 7, 2016 and May 31, 2016, Marty Jimmerson, our former CFO, served as Interim Chief Executive Officer (CEO) and President, replacing Mark Slaughter, our prior CEO and President. Mr. Jimmerson departed the Company on June 1, 2016. In connection with the departure of Mr. Slaughter, in the first quarter of 2016 we incurred a pre-tax executive departure expense of $1.9 million in the Corporate segment. On May 31, 2016, Steven E. Pickett was named Chief Executive Officer (CEO) and President of the Company.

During the three months ended September 30, 2016, we incurred a net pre-tax restructuring expense of $0.8 million consisting of $1.8 million of expense associated with the reduction of 73 employees partially offset by a net $1.0 million reversal of previously accrued restructuring charges for real estate exit costs not incurred.

During the nine months ended September 30, 2016, we incurred net pre-tax restructuring expense of $1.3 million consisting of $2.7 million associated with the reduction of 115 employees partially offset by a net $1.4 million reversal of previously accrued restructuring charges for employees that the Company did not release and real estate exit expense not incurred. We anticipate that we will substantially complete the plan by December 31, 2016.Texas.

In ~~the first quarter~~January 2017, we signed and announced an eight-year lease for new headquarters space, comprised of ~~2016, we reached a settlement related to a contract dispute associated with a percentage of completion project.~~28,808 square feet located at 15115 Park Row Blvd, Suite 300, Houston, Texas. The dispute related to the payment for work related to certain change orders. After the settlement, we recognized $2.3 million of gain in the nine months ended September 30, 2016. After the aforementioned settlement and gain, we have an accrued estimated loss of $12.0 million for this project, which represents the total evident probable and estimable loss expected to be incurred over the lifeterm of this project. In the third quarter of 2016, we received the final acceptance certificate from the customer acknowledging completion of the project with the exception of certain final punch list items. We expect remaining estimated project completion costs of $0.4 million, which includes costs to complete the final punch list items.lease runs through June 2025.

Uncertainties and negative trends in the oil and gas industry ~~could~~may continue to impact our profitability. The fundamentals of the oil and gas industry we serve ~~have deteriorated.~~deteriorated throughout 2015 and 2016 and remain challenged into 2017, particularly offshore. Oil prices ~~have~~ declined significantly throughout 2015 and into 2016 from the ~~recent high~~highs in mid-year 2014 due to lower-than-expected global oil demand growth, increased supply from U.S. unconventional sources and increased production from several international countries. Although oil prices and U.S. onshore drilling rig counts have increased since their 2016 lows, the oil and gas environment continues to be challenged with operators focusing on shorter term, land-based projects that generally require less capital investment. Generally, a prolonged lower oil price environment decreases exploration and development drilling investment, utilization of drilling rigs and the activity of the global oil and gas industry that we serve. Several global exploration and production companies ~~have~~ reduced their ~~2016~~ capital spending budgets, ~~compared to 2015~~including the cancellation or deferral of existing programs, and ~~2014 as a result of lower oil prices.~~

~~Although management has observed a sustained decline in demand, the global oil and gas industry that we serve is~~are expected to ~~move towards higher specification drilling rigs to perform contract drilling services either as a response to increased technical challenges or for~~continue operating under reduced budgets in the safety, reliability and efficiency typical of the newer, more capable rigs. This trend is commonly referred to as the bifurcation of the drilling fleet. Bifurcation is occurring in both the jackup and floater rig classes and is evidenced by the higher specification drilling rigs operating at generally higher overall utilization levels and day rates than the lower specification or standardcurrent commodity price environment.

~~drilling rigs. As~~For the ~~offshore drilling sector continues to construct and deliver newer, higher specification drilling units,~~periods referenced below, we expect lower specification drilling units to experience reduced overall utilization and day rates leading to a significant number of rigs being either warm or cold-stacked or scrapped. Although management has observed the pace of cold stacking and scrapping of offshore lower specification drilling rigs recently increasing, management plans to aggressively pursue opportunities to provide our serviceswere billing on the ~~higher specification new build offshore rigs.~~

As of September 30, 2016, we were serving a total of 194 jack up, semi-submersible and drillship rigs, a decrease of 61 rigs since September 30, 2015. We calculate our market share to be based on an IHS-Petrodata RigBase Current Activity report as of September 30, 2016 excluding cold-stacked rigs, rigs under construction, rigs out of service and rigs in sanctioned countries, as the marketplace does not consider these rigs to be addressable. We approximate our share of the addressable market share to be 27.5% as of September 30, 2016, which is down compared to 33.3% as of September 30, 2015. As of September 30, 2016, we were serving 287 offshore productionfollowing sites a decrease of 2 sites since September 30, 2015. As of September 30, 2016, we were serving 128 maritime sites, an increase of 1 site since September 30, 2015. As of September 30, 2016, we were serving 101 international land sites, a decrease of 20 sites since September 30, 2015. As of September 30, 2016, we were also serving 238 other sites, which include U.S. land, a decrease of 198 sites since September 30, 2015. Other sites include U.S. onshore drilling and production sites, completion sites, man-camps, remote offices, and supply bases and offshore-related supply bases, shore offices, tender rigs and platform rigs.

~~Drilling rig owners have announced and begun to cold stack and scrap drilling rigs which generally are older and not expected to be competitive. We expect that additional announcements are likely~~listed in the near future as a result of the overall lower global demand for offshore drilling rigs and expectations that many of the scheduled new build drilling rigs will be delivered and compete for global rig activity. Since October 1, 2014, we have been notified directly by customers or through public announcements that 102 offshore drilling rigs we served will be cold-stacked or scrapped. Revenue earned in 2015 from these 102 offshore drilling rigs was $22.1 million. Revenue earned in the recent peak year of 2014 from these 102 offshore drilling rigs was $30.1 million. As of September 30, 2016, we have stopped providing communication services on 92 of the 102 offshore drilling rigs as a result of being cold-stacked or scrapped. Revenue earned in 2015 and 2014 from these 92 offshore drilling rigs was $18.0 million and $25.4 million, respectively. According to The Baker Hughes Rig Count, U.S. land rigs have declined approximately 70.5% to 569 units in November 2016 since its most recent peak of 1,931 in late November 2014. According to The Baker Hughes Rig Count, U.S. land rigs have increased approximately 40.8% to 569 as of November 2016 since its recent low of 404 units in May 2016. It is uncertain if rig counts will recover to 2014 levels.table below:

In addition, uncertainties that could impact our profitability include service responsiveness to remote locations, communication network complexities, political and economic instability in certain regions, cyber-attacks, export restrictions, licenses and other trade barriers. These uncertainties may result in the delay of service initiation, which may negatively impact our results of operations. Additional uncertainties that could impact our operating cash flows include the availability and cost of satellite bandwidth, timing of collecting our receivables, and our ability to increase our contracted services through sales and marketing efforts while leveraging the contracted satellite and other communication service costs.

We are undergoing a routine sales tax audit in a state where we have operations for the period from August of 2011 to May of 2015. It is expected that the audit and the appeals process, if necessary, will be completed within the next nine months. We do not believe that the outcome of the audit will result in a material impact to the consolidated financial statements.

We are in a dispute with Inmarsat relating to a January 2014 take or pay agreement to purchase up to $65.0 million, under certain conditions, of GX capacity from Inmarsat over several years. We are attempting to resolve the dispute through a contractually stipulated arbitration process that began in October 2016. The parties dispute whether Inmarsat has met its contractual obligations with respect to the service under the agreement. In July 2017, pursuant to our contractual rights under the agreement, we delivered a notice of termination of the agreement to Inmarsat.

We have incurred legal expenses of $0.5 million in connection with the GX dispute for the six months ended June 30, 2017. We may continue to incur significant legal fees, related expenses and management time in the future. We cannot predict the ultimate outcome of the GX dispute, the total costs to be incurred or the potential impact on personnel.

Based on the information available at this time and our understanding of the GX dispute, we do not deem the likelihood of a material loss related to this dispute to be probable, so we have not accrued any liability related to the dispute. At this stage of the arbitration, the range of possible loss is not reasonably estimable, but could range from zero to the maximum amount payable under the contract for the services plus expenses.

The following table sets forth selected financial and operating data for the periods indicated.


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015			2017			2016			2017			2016
	(in thousands)												(in thousands)
Revenue	$	50,612		$	66,318		$	167,864		$	219,074		$	49,162		$	54,911		$	97,234		$	117,252

Expenses:
Cost of revenue (excluding depreciation and amortization)		29,860			38,191			99,412			121,860			33,038			33,276			62,913			69,552
Depreciation and amortization		8,305			8,094			25,561			24,401			7,552			9,013			14,868			17,256
Impairment of goodwill and intangible assets		—			12,592			397			12,592
Impairment of intangible assets														—			397			—			397
Selling and marketing		1,724			2,129			5,559			7,069			2,132			1,943			3,568			3,835
General and administrative		10,476			13,538			39,393			49,823			9,878			13,576			20,390			28,917

Total expenses		50,365			74,544			170,322			215,745			52,600			58,205			101,739			119,957

Operating income (loss)		247			(8,226	)		(2,458	)		3,329
Operating loss														(3,438	)		(3,294	)		(4,505	)		(2,705	)
Other expense, net		(1,155	)		(864	)		(2,437	)		(2,292	)		(873	)		(328	)		(1,379	)		(1,282	)

Income (loss) before income taxes		(908	)		(9,090	)		(4,895	)		1,037
Income tax expense		(540	)		(1,789	)		(2,676	)		(6,738	)
Loss before income taxes														(4,311	)		(3,622	)		(5,884	)		(3,987	)
Income tax benefit (expense)														101			(1,234	)		(313	)		(2,136	)

Net loss		(1,448	)		(10,879	)		(7,571	)		(5,701	)		(4,210	)		(4,856	)		(6,197	)		(6,123	)
Less: Net income attributable to non-controlling interest		210			65			171			233			39			(105	)		78			(39	)

Net loss attributable to RigNet, Inc. stockholders	$	(1,658	)	$	(10,944	)	$	(7,742	)	$	(5,934	)	$	(4,249	)	$	(4,751	)	$	(6,275	)	$	(6,084	)


Other Non-GAAP Data:
Gross Profit (excluding depreciation and amortization)	$	20,752		$	28,127		$	68,452		$	97,214
Unlevered Free Cash Flow	$	6,598		$	8,427		$	16,313		$	27,891		$	1,142		$	3,954		$	5,207		$	9,715
Adjusted EBITDA	$	8,534		$	14,498		$	27,824		$	50,118		$	6,053		$	8,624		$	13,278		$	19,290


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,					Six Months Ended June 30,
	2016			2015			2016			2015			2017			2016		2017			2016
	(in thousands)												(in thousands)
Eastern Hemisphere:
Managed Services:
Revenue	$	27,000		$	36,235		$	87,581		$	113,291		$	43,055		$	50,219	$	87,149		$	104,640
Cost of revenue (excluding depreciation and amortization)		14,603			18,103			46,742			54,737			27,544			29,682		54,346			60,682

Gross Profit (non-GAAP measure)		12,397			18,132			40,839			58,554
Depreciation and amortization		4,011			3,682			11,890			11,642			6,229			7,585		12,260			14,774
Selling, general and administrative		1,593			3,027			7,580			10,219			5,272			7,635		10,237			15,530

Eastern Hemisphere operating income	$	6,793		$	11,423		$	21,369		$	36,693
Managed Services operating income													$	4,010		$	5,317	$	10,306		$	13,654


Western Hemisphere:
Systems Integration and Automation (SI&A):
Revenue	$	20,205		$	24,578		$	64,264		$	79,360		$	6,107		$	4,692	$	10,085		$	12,612
Cost of revenue (excluding depreciation and amortization)		10,849			12,184			36,058			37,852			5,494			3,594		8,567			8,870

Gross Profit (non-GAAP measure)		9,356			12,394			28,206			41,508
Depreciation and amortization		2,705			2,892			8,142			8,872
Impairment of goodwill and intangible assets		—			12,592			—			12,592
Selling, general and administrative		2,976			3,454			9,432			12,334

Western Hemisphere operating income (loss)	$	3,675		$	(6,544	)	$	10,632		$	7,710


Telecoms Systems Integration:
Revenue	$	3,407		$	5,505		$	16,019		$	26,423
Cost of revenue (excluding depreciation and amortization)		2,911			5,819			11,781			21,607

Gross Profit (non-GAAP measure)		496			(314	)		4,238			4,816
Depreciation and amortization		631			791			2,127			2,329			611			9		1,198			38
Selling, general and administrative		499			467			2,141			2,903			422			721		892			1,642

Telecoms Systems Integration loss	$	(634	)	$	(1,572	)	$	(30	)	$	(416	)
Systems Integration and Automation operating income (loss)													$	(420	)	$	368	$	(572	)	$	2,062

NOTE: Consolidated balances include the ~~three~~two segments above along with corporate activities and intercompany eliminations.

Revenue.Revenue decreased by ~~$15.7~~$5.7 million, or ~~23.7%~~10.5%, to ~~$50.6~~$49.2 million for the three months ended ~~September~~June 30, ~~2016~~2017 from ~~$66.3~~$54.9 million for the three months ended ~~September~~June 30, ~~2015.~~2016. This decrease was driven by lower ~~revenues across all segments. The Eastern and Western Hemisphere segments decreased $9.2 million, or 25.5% and $4.4 million, or 17.8%, respectively. The decrease in~~ revenue in the ~~Eastern and Western Hemisphere segments is~~Managed Services segment, partially offset by increased revenues in the SI&A segment. The Managed Services segment decreased $7.2 million, or 14.3%, primarily due to decreased offshore sites served and decreased revenue-per-site from offshore drilling rigs. The decrease of 6138 offshore drilling sites served iswas primarily due to offshore drilling rigs we previously served being cold-stacked or scrapped partially offset by new sales wins. The decreased revenue-per-site from offshore drilling rigs is primarily due to decreased multi-tenancy ratios from operators on offshore drilling rigs. As rigs that we serve increasingly hot-stack (when a rig is taken out of service but is ready to mobilize on short notice) due to the current economic environment, the opportunity to serve the operator and earn additional revenue is lost until the drilling rig is subsequently contracted for service. ~~The Western Hemisphere segment,~~Revenue continues to ~~a lesser extent, was also adversely~~be impacted by ~~decreased U.S. Land activity partially offset by $2.0 million of revenue from the acquisition of TECNOR.~~previously announced reductions in offshore drilling. The ~~TSI~~SI&A segment ~~decreased $2.1~~increased $1.4 million, or ~~38.1%~~30.2%, due to the timing of ~~TSI~~SI&A projects. ~~The decrease in all segments is amid a backdrop of lower oil prices, decreased oil and gas activity and reduced offshore and onshore drilling budgets.~~

Cost of Revenue (excluding depreciation and amortization).~~Cost~~.Cost of revenue (excluding depreciation and amortization) decreased by ~~$8.3~~$0.2 million, or ~~21.8%~~0.7%, to ~~$29.9~~$33.0 million for the three months ended ~~September~~June 30, ~~2016~~2017 from ~~$38.2~~$33.3 million for the three months ended ~~September~~June 30, ~~2015.~~2016. Cost of revenue (excluding depreciation and amortization) decreased in ~~all segments~~the Managed Services segment by $2.1 million primarily due to reductions in ongoing expenses. This was partially offset by an increase in cost ~~reduction plans coupled with decreased costs from separate cost savings initiatives focused on reducing third party spend.~~of revenue in the SI&A segment of $1.9 million due to the timing of SI&A projects.

~~Gross Profit (excluding depreciation~~Depreciation and ~~amortization)~~Amortization.Depreciation and amortization expense decreased by ~~$7.4~~$1.5 million ~~or 26.2%,~~ to ~~$20.8~~$7.6 million for the three months ended ~~September~~June 30, ~~2016~~2017 from ~~$28.1~~$9.0 million for the three months ended ~~September~~June 30, 2015. Gross Profit (excluding depreciation and amortization) as a percentage of revenue, or Gross Profit Margin, decreased to 41.0% for the three months ended September 30, 2016 compared to 42.4% for the three months ended September 30, 2015.2016. The ~~decreased Gross Profit (excluding depreciation and amortization) and Gross Profit Margin~~decrease is primarily attributable to lower ~~revenue partially offset by benefits from cost containment actions.~~

~~Depreciation and Amortization.~~Depreciation and amortization expense increased by $0.2 million to $8.3 million for the three months ended September 30, 2016 from $8.1 million for the three months ended September 30, 2015. This increase is primarily attributable to accelerated depreciation on tenant improvementslevels of capital expenditures in ~~space abandoned as part of our corporate office lease restructuring, additions to property, plant and equipment and intangibles from the acquisition of TECNOR and capital expenditures.~~recent years.

Impairment of ~~Goodwill and~~ Intangible Assets.There was no impairment of goodwill or intangible assets in the three months ended September 30, 2016, as the July 2016 test resulted in no impairment as the fair value of each reporting unit exceeded the carrying value plus goodwill of that reporting unit. No impairment indicators have been identified through September 30, 2016.

~~As a result of the July 2015 annual impairment test, we~~We recognized ~~$12.6~~$0.4 million in impairment for the three months ended ~~September~~June 30, ~~2015 consisting~~2016. In June 2016, we identified a triggering event for a license in Kazakhstan associated with a decline in cash flow projections. In June 2016, we conducted an intangibles impairment test and as a result of ~~$10.9~~such test, recognized a $0.4 million in impairment of ~~goodwill and $1.7 million~~licenses in ~~impairment~~the Corporate segment, which was the full amount of intangibles in our North America Land reporting unit, which reports through our Western Hemisphere segment. Our North America Land reporting unit was adversely impacted by a significant decline in U.S. land rig counts since December 2014. This decline has resulted in reduced internal cash flow projections causing the estimated fair value of our North America Land reporting unit to be below its carrying value.within Kazakhstan.

Selling and Marketing.Selling and marketing expense ~~decreased $0.4~~increased $0.2 million to ~~$1.7 million for the three months ended September 30, 2016 from~~ $2.1 million for the three months ended ~~September~~June 30, ~~2015 due to~~2017 from $1.9 million for the ~~effect of cost reduction plans.~~three months ended June 30, 2016.

General and Administrative.General and administrative expenses decreased by ~~$3.1~~$3.7 million to ~~$10.5~~$9.9 million for the three months ended ~~September~~June 30, ~~2016~~2017 from ~~$13.5~~$13.6 million for the three months ended ~~September~~June 30, ~~2015.~~2016. General and administrative costs decreased in ~~the Eastern and Western Hemisphere~~both segments due to ~~cost reduction plans coupled with decreased costs from separate cost savings initiatives focused on reducing third party spend, releasing $0.8 million of accrual originally accrued~~reductions in ~~2013 related to the OFAC and BIS regulatory matter and $1.3 million for the reduction to fair value of the TECNOR earn-out partially offset by $0.8 million of restructuring costs.~~ongoing expenses.

Income Tax Expense.Our effective income tax rate was ~~(59.5)%~~2.3% and (34.1%) for the three months ended ~~September~~June 30, ~~2016. Our effective tax rate for the three months ended September 30, 2015 was not meaningful due to the impact of $12.6 million of impairment to goodwill~~2017 and intangibles and additional $1.3 million of restructuring charges recorded primarily in domestic operations which significantly decreased our consolidated pre-tax book income and thus increased the valuation allowance recognized in the three months ending September 30, 2015.2016, respectively. Our effective tax rate is affected by factors including changes in valuation allowances, fluctuations in income across jurisdictions with varying tax rates, and changes in income tax reserves, including related penalties and interest.

~~Nine months~~Six Months Ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016

Revenue.Revenue decreased by ~~$51.2~~$20.0 million, or ~~23.4%~~17.1%, to ~~$167.9~~$97.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 from ~~$219.1~~$117.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2015.~~2016. This decrease was driven by lower revenues across ~~all~~both segments. The ~~Eastern and Western Hemisphere segments~~Managed Services segment decreased ~~$25.7~~$17.5 million, or ~~22.7% and $15.1 million, or 19.0%~~16.7%, ~~respectively. The decrease in revenue in the Eastern and Western Hemisphere segments is~~ primarily due to decreased offshore sites served and decreased revenue-per-site from offshore drilling rigs. The decrease of 6138 offshore drilling sites served iswas primarily due to offshore drilling rigs we previously served being cold-stacked or scrapped partially offset by new sales wins. The decreased revenue-per-site from offshore drilling rigs is primarily due to decreased multi-tenancy ratios from operators on offshore drilling rigs. As rigs that we serve increasingly hot-stack (when a rig is taken out of service but is ready to mobilize on short notice) due to the current economic environment, the opportunity to serve the operator and earn additional revenue is lost until the drilling rig is subsequently contracted for service. ~~The Western Hemisphere segment,~~Revenue continues to ~~a lesser extent, was also adversely~~be impacted by ~~decreased U.S. Land activity partially offset by $7.1 million of revenue from the acquisition of TECNOR.~~previously announced reductions in offshore drilling. The ~~TSI~~SI&A segment decreased ~~$10.4~~$2.5 million, or ~~39.4%~~20.0%, due to the timing of ~~TSI~~SI&A projects. ~~The decrease in all segments is amid a backdrop of lower oil prices, decreased oil and gas activity and reduced offshore and onshore drilling budgets.~~

Cost of Revenue (excluding depreciation and amortization).Cost of revenue (excluding depreciation and amortization) decreased by ~~$22.4~~$6.6 million, or ~~18.4%~~9.5%, to ~~$99.4~~$62.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 from ~~$121.9~~$69.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2015.~~2016. Cost of revenue (excluding depreciation and amortization) decreased in ~~all~~both segments primarily due to ~~cost reduction plans coupled with decreased costs from separate cost savings initiatives focused on reducing third party spend.~~reductions in ongoing expenses.

~~Gross Profit (excluding depreciation~~Depreciation and ~~amortization)~~Amortization.Depreciation and amortization expense decreased by ~~$28.8~~$2.4 million ~~or 29.6%,~~ to ~~$68.5~~$14.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 from ~~$97.2~~$17.3 million for the ~~nine~~six months ended ~~September~~June 30, 2015. Gross Profit (excluding depreciation and amortization) as a percentage of revenue, or Gross Profit Margin, decreased to 40.8% for the nine months ended September 30, 2016 compared to 44.4% for the nine months ended September 30, 2015.2016. The ~~decreased Gross Profit (excluding depreciation and amortization) and Gross Profit Margin~~decrease is primarily attributable to lower ~~revenue partially offset by benefits from cost containment actions.~~levels of capital expenditures in recent years.

~~Depreciation and Amortization.~~IDepreciation and amortization expense increased by $1.2 million to $25.6 million for the nine months ended September 30, 2016 from $24.4 million for the nine months ended September 30, 2015. This increase is primarily attributable to accelerated depreciation on tenant improvements in space abandoned as part of our corporate office lease restructuring coupled with additions to property, plant and equipment and intangibles from the acquisition of TECNOR and capital expenditures.

~~Impairment~~mpairment of Intangible Assets.We recognized $0.4 million in impairment for the ~~nine~~six months ended ~~September~~June 30, 2016. In June 2016, we identified a triggering event for a license in Kazakhstan associated with a decline in cash flow projections. In June 2016, we conducted an intangibles impairment test and as a result of such test, recognized a $0.4 million impairment of licenses in the Corporate segment, which was the full amount of intangibles within Kazakhstan.

As a result of the July 2015 annual impairment test, we recognized $12.6 million in impairment for the nine months ended September 30, 2015 consisting of $10.9 million in impairment of goodwill and $1.7 million in impairment of intangibles in our North America Land reporting unit, which reports through our Western Hemisphere segment. Our North America Land reporting unit was adversely impacted by a significant decline in U.S. land rig counts since December 2014. This decline has resulted in reduced internal cash flow projections causing the estimated fair value of our North America Land reporting unit to be below its carrying value.

Selling and Marketing.Selling and marketing expense decreased ~~$1.5~~$0.3 million to ~~$5.6~~$3.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 from ~~$7.1~~$3.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2015 due to the effect of cost reduction plans.~~2016.

General and Administrative.General and administrative expenses decreased by ~~$10.4~~$8.5 million to ~~$39.4~~$20.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 from ~~$49.8~~$28.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2015.~~2016. General and administrative costs decreased in ~~all~~both segments due to ~~cost reduction plans coupled with decreased costs from separate cost savings initiatives focused on reducing third party spend, releasing $0.8 million of accrual originally accrued~~reductions in 2013 related to the OFAC and BIS regulatory matter and $1.3 million for the reduction to fair value of the TECNOR earn-out partially offset by $1.3 million of restructuring charges, $1.9 million of executive departure costs, and CEO search costs.ongoing expenses.

Income Tax ~~Expense.~~Expense.Our effective income tax rate was ~~(54.7)%~~(5.3%) and (53.6%) for the ~~nine~~six months ended ~~September~~June 30, 2017 and 2016, respectively. Our effective tax rate for the nine months ended September 30, 2015 was not meaningful due to the impact of $12.6 million of impairment to goodwill and intangibles and $7.5 million of restructuring charges recorded primarily in domestic operations which significantly decreased our consolidated pre-tax book income and thus increased the valuation allowance recognized in the nine months ending September 30, 2015. Our effective tax rate is affected by factors including changes in valuation allowances, fluctuations in income across jurisdictions with varying tax rates, and changes in income tax reserves, including related penalties and interest.

At ~~September~~June 30, ~~2016,~~2017, we had working capital, including cash, of ~~$87.9~~$61.5 million.

On July 28, 2017, concurrent with our acquiring substantially all the assets of ESS, we made a $15.0 million draw on the Revolving Credit Facility (RCF).

Based on our current expectations, we believe our liquidity and capital resources will be sufficient for the conduct of our business and operations for the foreseeable future. We may also use a portion of our available cash to finance growth through the acquisition of, or investment in, businesses, products, services or technologies complementary to our current business, through mergers, acquisitions, joint ventures or otherwise, or to pay down outstanding debt.

During the next twelve months, we expect our principal sources of liquidity to be cash flows from operating activities, cash and cash equivalents on hand and availability under our credit facility. In forecasting our cash flows we have considered factors including contracted services related to long-term deepwater drilling programs, U.S. land rig count trends, projected oil and natural gas prices, and contracted and available satellite bandwidth.

While we believe we have sufficient liquidity and capital resources to meet our current operating requirements and expansion plans, we may elect to pursue additional expansion opportunities within the next year which could require additional financing, either debt or equity.

Beyond the next twelve months, we expect our principal sources of liquidity to be cash flows provided by operating activities, cash and cash equivalents on hand, availability under our credit facility and additional financing activities we may pursue, which may include debt or equity offerings.


	Nine Months Ended September 30,
	2016			2015			Six Months Ended June 30,
	(in thousands)						2017			2016
							(in thousands)
Condensed Consolidated Statements of Cash Flows Data:
Cash and cash equivalents, January 1,	$	60,468		$	66,576		$	57,152		$	60,468
Net cash provided by operating activities		22,754			27,045			9,283			18,440
Net cash used in investing activities		(16,886	)		(21,307	)		(11,063	)		(15,343	)
Net cash used in financing activities		(8,111	)		(5,524	)		(13,845	)		(3,859	)
Changes in foreign currency translation		(986	)		(1,995	)		1,172			(250	)

Cash and cash equivalents, September 30,	$	57,239		$	64,795
Cash and cash equivalents, June 30,							$	42,699		$	59,456

Currently, the Norwegian kroner and the British pound sterling ~~and the Australian dollar~~ are the foreign currencies that could materially impact our liquidity. We presently do not hedge these risks, but evaluate financial risk on a regular basis and may utilize financial instruments in the future if deemed necessary. During the ~~nine~~six months ended ~~September~~June 30, 2017 and 2016, 89.5% and ~~2015, 84.6% and 85.4%~~84.0% of our revenue was denominated in U.S. dollars, respectively.

Net cash provided by operating activities was ~~$22.8~~$9.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 compared to ~~$27.0~~$18.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2015.~~2016. The decrease in cash provided by operating activities during ~~2016~~2017 of ~~$4.3~~$9.2 million was primarily due to ~~lower~~decreased operating ~~income (loss) offset by the timing of collection of our accounts receivable.~~activity.

Our cash provided by operations is subject to many variables, the most significant of which is the volatility of the oil and gas industry and, therefore, the demand for our services. Other factors impacting operating cash flows include the availability and cost of satellite bandwidth, as well as the timing of collecting our receivables. Our future cash flow from operations will depend on our ability to increase our contracted services through our sales and marketing efforts while leveraging ~~the~~our contracted satellite and other communication service costs.

Net cash used in investing activities was ~~$16.9~~$11.1 million and ~~$21.3~~$15.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015,~~2016, respectively.

Net Cash used in investing activities during the ~~nine~~six months ended ~~September~~June 30, ~~2016 include $4.8~~2017 included $4.9 million paid in connection with the acquisition of Cyphre. Net Cash used in investing activities during the six months ended June 30, 2016 included $4.8 million paid for the acquisition of TECNOR. Net cash used in investing activities during the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016 includes capital expenditures of ~~$11.2~~$6.5 million and ~~$21.9~~$9.4 million, respectively. We expect capital expenditures for ~~2016~~2017 to be lower than the previous year due to ~~continuing decline in~~continued low levels of global offshore oil and gas drilling activity.

Net cash used in financing activities was ~~$8.1~~$13.8 million and ~~$5.5~~$3.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015,~~2016, respectively. Cash used in financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2016 includes $9.4~~2017 included $14.5 million in principal payments on our long-term debt consisting primarily of ~~$6.4~~$4.3 million ~~of principal payments~~ on the Term Loan and ~~$3.0~~$10.0 million on the ~~revolving credit facility.~~RCF. Cash used in financing activities for the six months ended June 30, 2016 included $4.3 million in principal payments on our long-term debt.

The Company has a $60.0 million term loan (Term Loan) and a ~~$125.0~~$75.0 million ~~revolving credit facility,~~RCF, which includes a $15 million sublimit for the issuance of standby letters of credit.

The Term Loan bears an interest rate of LIBOR plus a margin ranging from 1.5% to 2.5%, based on a ratio of funded debt to Consolidated EBITDA, a non-GAAP financial measure defined in the credit agreement. Interest is payable monthly along with quarterly principal installments of $2.1 million, with the balance due October 2018. The weighted average interest rate for the three months ended ~~September~~June 30, 2017 and 2016 was 3.1% and ~~2015 was 2.5% and 2.0%~~2.4%, respectively. The weighted average interest rate for the ~~nine~~six months ended ~~September~~June 30, 2017 and 2016 was 3.1% and ~~2015 was 2.4% and 2.0%~~2.3%, respectively, with an interest rate of ~~2.5%~~3.2% at ~~September~~June 30, ~~2016.~~2017. The Term Loan is secured by substantially all the assets of the Company. As of ~~September~~June 30, ~~2016,~~2017, the outstanding principal balance of the Term Loan was ~~$36.5~~$30.0 million.

The ~~revolving credit facility~~RCF matures in October 2018 with any outstanding borrowings then payable. Borrowings under the ~~revolving credit facility~~RCF carry an interest rate of LIBOR plus an applicable margin ranging from 1.5% to 2.5%, which varies as a function of the Company’s leverage ratio. As of ~~September~~June 30, ~~2016, $32.0~~2017, $17.0 million in draws on the facility remain outstanding. The weighted average interest rate for the three months ended ~~September~~June 30, 2017 and 2016 was 3.1% and ~~2015 was 2.5% and 2.0%~~2.3%, respectively. The weighted average interest rate for the ~~nine~~six months ended ~~September~~June 30, 2017 and 2016 was 3.1% and ~~2015 was 2.4% and 2.0%~~2.3%, respectively, with an interest rate of ~~2.5%~~3.2% at ~~September~~June 30, ~~2016.~~2017.

As of June 30, 2017, there were $6.3 million in standby letters of credit issued, which reduces our availability under the RCF.

In February 2016, we amended our credit agreement with the most significant changes being the definition of Consolidated EBITDA, the calculation of the fixed charge coverage ratio and the timing associated with delivery of financial statements and compliance certificates to the administrative agent.

In December 2016, we amended our credit agreement with the most significant changes being voluntarily reducing the revolving credit facility from $125 million to $75 million and changing the definition of Consolidated EBITDA and certain other definitions contained in the credit agreement.

Our credit agreement imposes certain restrictions including limitations on our ability to obtain additional debt financing and on our payment of cash dividends. It also requires us to maintain certain financial covenants such as a funded debt to Consolidated EBITDA ratio of less than or equal to 2.5 to 1.0 and a fixed charge coverage ratio of not less than 1.25 to 1.0. At ~~September~~June 30, ~~2016,~~2017, we believe we were in compliance with all covenants.

In 2013, our internal compliance program detected potential violations of U.S. sanctions by one of our foreign subsidiaries in connection with certain of our customers’ rigs that were moved into the territorial waters of countries sanctioned by the United States. We estimate that we received total revenue of approximately $0.1 million during the period related to the potential violations. We have voluntarily self-reported the potential violations to the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) and the U.S. Department of Commerce Bureau of Industry and Security (BIS) and retained outside counsel who conducted an investigation of the matter and submitted a report to OFAC and BIS.

~~We incurred legal expenses of $0.1 million and $0.1 million in connection with the investigation for the nine months ended September 30, 2016 and 2015, respectively.~~

In the third quarter of 2016, we received a letter from BIS notifying the Company that it had concluded its investigation. BIS assessed no fines or penalties on us in connection with the matter. We do not anticipate any additional penalties or fines will be assessed as a result of the matter. As such, we have released the previously accrued estimated liability of $0.8 million resulting in a decrease of general and administrative expense for the three and nine months ended September 30, 2016 in the Eastern Hemisphere Segment.

~~The non-GAAP~~Adjusted EBITDA and Unlevered Free Cash Flow should not be considered as alternatives to net loss, operating income (loss), basic or diluted earnings per share or any other measure of financial ~~measures, Gross Profit (excluding depreciation~~performance calculated and ~~amortization),~~presented in accordance with GAAP. Our Adjusted EBITDA and Unlevered Free Cash Flow may not be comparable to similarly titled measures of other companies because other companies may not calculate ~~Gross Profit (excluding depreciation and amortization),~~ Adjusted EBITDA, ~~and~~ Unlevered Free Cash Flow or similarly titled measures in the same manner as we do. Therefore, these non-GAAP measures should be considered in conjunction with net loss and other performance measures prepared in accordance with GAAP, such as gross profit, operating income (loss) or net cash provided by operating activities. Further, Gross Profit (excluding depreciation and amortization), Adjusted EBITDA and Unlevered Free Cash Flow should not be considered in isolation or as a substitute for GAAP measures such as net loss, gross profit, operating income (loss) or any other GAAP measure of liquidity or financial performance. We prepare ~~Gross Profit (excluding depreciation and amortization),~~ Adjusted EBITDA and Unlevered Free Cash Flow to eliminate the impact of items that we do not consider indicative of our core operating performance. We encourage you to evaluate these adjustments and the reasons we consider them appropriate.

~~The following table presents a reconciliation of our gross profit under GAAP to Gross Profit (excluding depreciation and amortization).~~

GAAP defines gross profit as revenue less cost of revenue, and includes in cost of revenue depreciation and amortization expenses related to revenue-generating long-lived and intangible assets. We define Gross Profit (excluding depreciation and amortization) as revenue less cost of revenue (excluding depreciation and amortization). This measure differs from the GAAP definition of gross profit as we do not include the impact of depreciation and amortization expenses related to revenue-generating long-lived and intangible assets which represent non-cash expenses. We believe this measure is useful to investors because management uses it to evaluate operating margins and the effectiveness of cost management.

We define Adjusted EBITDA as net loss plus interest expense, income tax expense, depreciation and amortization, impairment of goodwill, intangibles, property, plant and equipment, foreign exchange impact of intercompany financing activities, (gain) loss on retirement of property, plant and equipment, change in fair value of ~~derivatives, change in fair value of the TECNOR earn-out,~~earn-outs/contingent consideration, stock-based compensation, merger/acquisition costs, executive departure costs, restructuring charges and non-recurring items.

We believe Adjusted EBITDA is useful to investors in evaluating our operating performance for the following reasons:

Although Adjusted EBITDA is frequently used by investors and securities analysts in their evaluations of companies, Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results of operations as reported under GAAP. Some of these limitations are:

We define Unlevered Free Cash Flow as Adjusted EBITDA less capital expenditures. We believe Unlevered Free Cash Flow is useful to investors in evaluating our operating performance for the following reasons:

Although Unlevered Free Cash Flow is frequently used by investors and securities analysts in their evaluations of companies, Unlevered Free Cash Flow has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results of operations as reported under GAAP. Some of these limitations are:

The following table presents a reconciliation of our net loss to Adjusted EBITDA and Unlevered Free Cash Flow.


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015			2017			2016			2017			2016
	(in thousands)												(in thousands)
Net loss	$	(1,448	)	$	(10,879	)	$	(7,571	)	$	(5,701	)	$	(4,210	)	$	(4,856	)	$	(6,197	)	$	(6,123	)
Interest expense		729			502			2,040			1,521			613			643			1,232			1,311
Depreciation and amortization		8,305			8,094			25,561			24,401			7,552			9,013			14,868			17,256
Impairment of goodwill and intangible assets		—			12,592			397			12,592
Gain on sales of property, plant and equipment, net of retirements		(14	)		(10	)		(164	)		(23	)
Impairment of intangible assets														—			397			—			397
(Gain) loss on sales of property, plant and equipment, net of retirements														13			(134	)		50			(150	)
Stock-based compensation		866			973			2,708			2,955			1,116			1,128			1,942			1,842
Restructuring		835			1,316			1,332			7,514			—			1,129			—			497
Change in fair value of TECNOR earn-out		(1,279	)		—			(1,279	)		—
Change in fair value of earn-out/contingent consideration														(846	)		—			(846	)		—
Executive departure costs		—			—			1,884			—			—			—			—			1,884
Acquisition costs		—			121			240			121			1,916			70			1,916			240
Income tax expense		540			1,789			2,676			6,738
Income tax expense (benefit)														(101	)		1,234			313			2,136

Adjusted EBITDA (non-GAAP measure)	$	8,534		$	14,498		$	27,824		$	50,118		$	6,053		$	8,624		$	13,278		$	19,290


Adjusted EBITDA (non-GAAP measure)	$	8,534		$	14,498		$	27,824		$	50,118		$	6,053		$	8,624		$	13,278		$	19,290
Capital expenditures		1,936			6,071			11,511			22,227			4,911			4,670			8,071			9,575

Unlevered Free Cash Flow (non-GAAP measure)	$	6,598		$	8,427		$	16,313		$	27,891		$	1,142		$	3,954		$	5,207		$	9,715

We evaluate Adjusted EBITDA and Unlevered Free Cash Flow generated from our operations ~~and operating segments~~ to assess the potential recovery of historical capital expenditures, determine timing and investment levels for growth opportunities, extend commitments of satellite bandwidth cost, ~~to expand our offshore production platform and vessel market share,~~ invest in new products and services, expand or open new offices and service centers, ~~and SOIL nodes,~~ and assist purchasing synergies.

Adjusted EBITDA decreased by ~~$6.0~~$2.6 million to ~~$8.5~~$6.1 million for the three months ended ~~September~~June 30, ~~2016,~~2017, from ~~$14.5~~$8.6 million for the three months ended ~~September~~June 30, ~~2015.~~2016. Adjusted EBITDA decreased by ~~$22.3~~$6.0 million to ~~$27.8~~$13.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, from ~~$50.1~~$19.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2015.~~2016. The ~~decreases~~decrease resulted primarily from lower revenue partially offset by ~~cost containment actions.~~a reduction in ongoing operating expenses.

Unlevered Free Cash Flow was ~~$6.6~~$1.1 million in the three months ended ~~September~~June 30, ~~2016,~~2017, a decrease of ~~$1.8~~$2.8 million over the prior year quarter. The decrease in Unlevered Free Cash Flow over the prior year quarter was due to decreased Adjusted EBITDA. Unlevered Free Cash Flow was ~~$16.3~~$5.2 million in the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, a decrease of ~~$11.6~~$4.5 million over the prior year period. The ~~decreases~~decrease in Unlevered Free Cash Flow ~~were~~over the prior year period was due to decreased Adjusted EBITDA partially offset by a decline in capital expenditures.

Item 3.Quantitative and Q~~ualitative~~Qualitative Disclosures about Market Risk

We are subject to a variety of risks, including foreign currency exchange rate fluctuations relating to foreign operations and certain purchases from foreign vendors. In the normal course of business, we assess these risks and have established policies and procedures to manage our exposure to fluctuations in foreign currency values.

Our objective in managing our exposure to foreign currency exchange rate fluctuations is to reduce the impact of adverse fluctuations in earnings and cash flows associated with foreign currency exchange rates. We presently do not hedge these risks, but evaluate financial risk on a regular basis and may utilize financial instruments in the future if deemed necessary. During the ~~nine~~six months ended ~~September~~June 30, 2017 and 2016, 10.5% and ~~2015, 15.4% and 14.6%~~16.0%, respectively of our revenues were earned in non-U.S. currencies. At ~~September~~June 30, ~~2016~~2017 and ~~2015,~~2016, we had no significant outstanding foreign exchange contracts.

Our results of operations and cash flows are subject to fluctuations due to changes in interest rates primarily from our variable interest rate long-term debt. We presently do not hedge these risks, but evaluate financial risk on a regular basis and may utilize financial instruments in the future if deemed necessary. The following analysis reflects the annual impacts of potential changes in our interest rate to net loss attributable to us and our total stockholders’ equity based on our outstanding long-term debt on ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, assuming those liabilities were outstanding for the previous twelve months:


	September 30,		December 31,		June 30,		December 31,
	2016		2015		2017		2016
	(in thousands)				(in thousands)
Effect on Net Income (Loss) and Equity - Increase/Decrease:
Effect on Net Income (Loss) and Equity—Increase/Decrease:
1% Decrease/increase in rate	$	686	$	777	$	471	$	615
2% Decrease/increase in rate	$	1,372	$	1,553	$	942	$	1,229
3% Decrease/increase in rate	$	2,058	$	2,330	$	1,413	$	1,844

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of ~~September~~June 30, ~~2016.~~2017. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of ~~September~~June 30, ~~2016,~~2017, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

~~Except as discussed below, there~~There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) of the Exchange Act that occurred during the quarter ended ~~September~~June 30, ~~2016~~2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

~~During the quarter ending September 30, 2016, we completed the implementation of an ERP system, SAP (B1), concluding a multi-year plan to integrate and upgrade our systems and processes.~~

As the phased implementation of this system occurred, we have experienced certain changes to our processes and procedures which, in turn, resulted in changes to our internal control over financial reporting. While we expect SAP (B1) to strengthen our internal financial controls by automating certain manual processes and standardizing business processes and reporting across our organization, management will continue to evaluate and monitor our internal controls as processes and procedures in each of the affected areas evolve. For a discussion of risks related to the implementation of new systems, see “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2015.

~~From~~Inmarsat and the Company are in a dispute relating to a January 2014 take or pay agreement to purchase up to $65.0 million, under certain conditions, of GX capacity from Inmarsat over several years. The parties are attempting to resolve the dispute through a contractually stipulated arbitration process with the International Centre for Dispute Resolution that began in October 2016. The parties dispute whether Inmarsat has met its contractual obligations with respect to the service under the agreement. In July 2017, pursuant to its contractual rights under the agreement, the Company delivered a notice of termination of the agreement to Inmarsat.

Based on the information available at this time ~~we have been subject~~and management’s understanding of the GX dispute, the Company does not deem the likelihood of a material loss related to ~~various claims and legal actions~~this dispute to be probable, so it has not accrued any liability related to the dispute. At this stage of the arbitration, the range of possible loss is not reasonably estimable, but could range from zero to the maximum amount payable under the contract for the services plus expenses.

The Company, in the ordinary course of ~~our business. We are not currently involved~~business, is a claimant or a defendant in ~~any~~various other legal ~~proceeding~~proceedings, including proceedings as to which the ~~ultimate outcome~~Company has insurance coverage and those that may involve the filing of ~~which, in our judgment based on information currently available, would have a material impact on our business, financial condition~~liens against the Company or ~~results of operations.~~its assets.

There have been no material changes from the risk factors disclosed in “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, ~~2015.~~2016.

~~None~~192,136 shares valued at $3.3 million were used in the May 18, 2017 acquisition of Cyphre Security Solutions (Cyphre), a private Texas based company. Cyphre is a cybersecurity company that provides advanced enterprise data protection leveraging BlackTIE^® hardware-based encryption featuring low latency protection for files at rest and in transit for both public and private cloud.

The exhibits required to be filed with this Quarterly Report on Form 10-Q are listed in the Exhibit Index attached hereto and are incorporated herein by reference.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Delaware		76-0677208
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

~~1880 S. Dairy Ashford,~~15115 Park Row Blvd, Suite 300 Houston, Texas		~~77077-4760~~77084-4947
(Address of principal executive offices)		(Zip Code)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
	(in thousands)

Revenue	$	50,612		$	70,985		$	168,899		$	228,244
Expenses		52,060			80,817			176,267			233,101

Net loss	$	(1,448	)	$	(9,832	)	$	(7,368	)	$	(4,857	)


Net loss attributable to RigNet, Inc. common stockholders	$	(1,658	)	$	(9,897	)	$	(7,539	)	$	(5,090	)


Net loss per share attributable to RigNet, Inc. common stockholders:
Basic	$	(0.09	)	$	(0.56	)	$	(0.43	)	$	(0.29	)

Diluted	$	(0.09	)	$	(0.56	)	$	(0.43	)	$	(0.29	)


INDEX TO EXHIBITS

2.2		Share Purchase Agreement between RigNet, Inc. and the shareholders of Orgtec S.A.P.I. de C.V., d.b.a. TECNOR dated November 3, 2015 (filed as Exhibit 2.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on May 9, 2016, and incorporated herein by reference)

3.1		Amended and Restated Certificate of Incorporation, as amended (filed as Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on August 8, 2016, and incorporated herein by reference)

3.2		Amendment to Amended and Restated Certificate of Incorporation, effective May 18, ~~2016~~2016. (filed as Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on August 8, 2016, and incorporated herein by reference).

3.3		Amended and Restated Bylaws of the Registrant, as amended (filed as Exhibit 3.3 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on August 8, 2016, and incorporated herein by reference)

3.4		Amendment to the Amended and Restated Bylaws of RigNet, Inc., effective May 18, 2016 (filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on May 24, 2016, and incorporated herein by reference)

10.1+		Consulting Services Agreement between the Registrant and William Sutton dated July 13, 2017

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		XBRL Instance Document

101.SCH		XBRL Schema Document

101.CAL		XBRL Calculation Linkbase Document

101.DEF		XBRL Definition Linkbase Document

101.LAB		XBRL Label Linkbase Document

101.PRE		XBRL Presentation ~~Linkbase Document~~

~~101.DEF~~		~~XBRL Definition~~ Linkbase Document

		+ Indicates management contract or compensatory plan.


			RIGNET, INC.

Date:	~~November~~ August 7, ~~2016~~2017	By:	/s/ CHARLES E. SCHNEIDER
			Charles E. Schneider
			Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)


			Page

PART I – FINANCIAL INFORMATION

Item 1	Condensed Consolidated Financial Statements (Unaudited)	3

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3	Quantitative and Qualitative Disclosures about Market Risk	34

Item 4	Controls and Procedures	35

PART II – OTHER INFORMATION

Item 1	Legal Proceedings	36

Item 1A	Risk Factors	36

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 3	Defaults Upon Senior Securities	36

Item 4	Mine Safety Disclosures	36

Item 5	Other Information	36

Item 6	Exhibits	36


2017		1,618
2018		1,650
2019		1,009
2020		740
2021		468
Thereafter		1,750

	$	7,235


	2nd Quarter		1st Quarter		4th Quarter		3rd Quarter		2nd Quarter
	2017		2017		2016		2016		2016
Selected Operational Data:
Offshore drilling rigs (1)		173		173		175		194		211
Offshore Production		296		290		280		287		287
Maritime		134		124		122		128		105
International Land		112		104		104		101		99
Other sites (2)		336		304		240		238		236

Total		1,051		995		921		948		938

Large accelerated filer

Accelerated filer

Non-accelerated filer

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Smaller reporting company

Emerging growth company