UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2017~~2018

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number001-35003

RigNet, Inc.

(Exact name of registrant as specified in its charter)


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

15115 Park Row Blvd, Suite 300 Houston, Texas		77084-4947
(Address of principal executive offices)		(Zip Code)

(281) 674-0100

Registrant’s telephone number, including area code

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 RegulationS-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, anon-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule12b-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 Rule12b-2 of the Exchange Act). Yes ☐ No ☒

At ~~October~~July 31, ~~2017,~~2018, there were outstanding ~~18,225,194~~19,359,863 shares of the registrant’s Common Stock.

TABLE OF CONTENTS


		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		2224

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

PART I – FINANCIAL INFORMATION

Item 1.Condensed Consolidated Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
	(in thousands, except share amounts)						(in thousands, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	32,900		$	57,152		$	18,366		$	34,598
Restricted cash		43			139			42			43
Accounts receivable, net		49,216			48,672			64,850			49,021
Costs and estimated earnings in excess of billings on uncompleted contracts		1,773			2,382			3,719			2,393
Prepaid expenses and other current assets		6,743			10,379			7,053			5,591

Total current assets		90,675			118,724			94,030			91,646
Property, plant and equipment, net		62,895			59,757			61,148			60,344
Restricted cash		1,500			1,514			1,546			1,500
Goodwill		37,122			21,998			48,479			37,088
Intangibles, net		32,341			16,028			38,882			30,405
Deferred tax and other assets		13,315			12,951			8,768			9,111

TOTAL ASSETS	$	237,848		$	230,972		$	252,853		$	230,094

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	12,195		$	9,057		$	17,298		$	12,234
Accrued expenses		15,592			12,835			14,737			16,089
Current maturities of long-term debt		8,545			8,478			4,949			4,941
Income taxes payable		240			877			908			1,601
Deferred revenue and other current liabilities		9,340			3,625			15,743			8,511

Total current liabilities		45,912			34,872			53,635			43,376
Long-term debt		51,455			52,990			53,195			53,173
Deferred revenue		263			254			417			546
Deferred tax liability		301			256			3,990			189
Other liabilities		27,365			30,022			31,515			25,533

Total liabilities		125,296			118,394			142,752			122,817

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, 2017 or December 31, 2016		—			—
Common stock - $0.001 par value; 191,000,000 shares authorized; 18,225,194 and 17,932,598 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively		18			18
Treasury stock - 5,516 and no shares at September 30, 2017 and December 31, 2016, respectively, at cost		(116	)		—
Preferred stock - $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding at June 30, 2018 or December 31, 2017								—			—
Common stock - $0.001 par value; 191,000,000 shares authorized; 19,359,863 and 18,232,872 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively								19			18
Treasury stock - 89,880 and 5,516 shares at June 30, 2018 and December 31, 2017, respectively, at cost								(1,246	)		(116	)
Additionalpaid-in capital		154,959			147,906			170,603			155,829
Accumulated deficit		(28,057	)		(17,550	)		(43,949	)		(33,726	)
Accumulated other comprehensive loss		(14,468	)		(17,971	)		(15,398	)		(14,806	)

Total stockholders’ equity		112,336			112,403			110,029			107,199
Non-redeemable,non-controlling interest		216			175			72			78

Total equity		112,552			112,578			110,101			107,277

TOTAL LIABILITIES AND EQUITY	$	237,848		$	230,972		$	252,853		$	230,094

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

RIGNET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
	(in thousands, except per share amounts)												(in thousands, except per share amounts)
Revenue	$	50,844		$	50,612		$	148,078		$	167,864		$	60,007		$	49,162		$	113,840		$	97,234

Expenses:
Cost of revenue (excluding depreciation and amortization)		32,385			29,860			95,298			99,412			36,246			33,038			69,927			62,913
Depreciation and amortization		7,999			8,305			22,867			25,561			8,356			7,552			16,343			14,868
Impairment of intangible assets		—			—			—			397
Selling and marketing		2,400			1,724			5,968			5,559			4,189			2,132			7,138			3,568
General and administrative		11,011			10,476			31,401			39,393			15,546			9,878			29,232			20,390

Total expenses		53,795			50,365			155,534			170,322			64,337			52,600			122,640			101,739

Operating income (loss)		(2,951	)		247			(7,456	)		(2,458	)
Operating loss														(4,330	)		(3,438	)		(8,800	)		(4,505	)
Other income (expense):
Interest expense		(689	)		(729	)		(1,921	)		(2,040	)		(1,007	)		(613	)		(1,966	)		(1,232	)
Other income (expense), net		209			(426	)		62			(397	)		112			(260	)		618			(147	)

Loss before income taxes		(3,431	)		(908	)		(9,315	)		(4,895	)		(5,225	)		(4,311	)		(10,148	)		(5,884	)
Income tax expense		(762	)		(540	)		(1,075	)		(2,676	)
Income tax benefit (expense)														926			101			323			(313	)

Net loss		(4,193	)		(1,448	)		(10,390	)		(7,571	)		(4,299	)		(4,210	)		(9,825	)		(6,197	)
Less: Net income attributable tonon-redeemable,non-controlling interest		39			210			117			171			30			39			60			78

Net loss attributable to RigNet, Inc. stockholders	$	(4,232	)	$	(1,658	)	$	(10,507	)	$	(7,742	)	$	(4,329	)	$	(4,249	)	$	(9,885	)	$	(6,275	)

COMPREHENSIVE LOSS
Net loss	$	(4,193	)	$	(1,448	)	$	(10,390	)	$	(7,571	)	$	(4,299	)	$	(4,210	)	$	(9,825	)	$	(6,197	)
Foreign currency translation		1,737			(363	)		3,503			(1,954	)		(2,192	)		905			(592	)		1,766

Comprehensive loss		(2,456	)		(1,811	)		(6,887	)		(9,525	)		(6,491	)		(3,305	)		(10,417	)		(4,431	)
Less: Comprehensive income (loss) attributable tonon-controlling interest		39			210			117			171	��		30			39			60			78

Comprehensive loss attributable to RigNet, Inc. stockholders	$	(2,495	)	$	(2,021	)	$	(7,004	)	$	(9,696	)	$	(6,521	)	$	(3,344	)	$	(10,477	)	$	(4,509	)

LOSS PER SHARE – BASIC AND DILUTED
LOSS PER SHARE - BASIC AND DILUTED
Net loss attributable to RigNet, Inc. common stockholders	$	(4,232	)	$	(1,658	)	$	(10,507	)	$	(7,742	)	$	(4,329	)	$	(4,249	)	$	(9,885	)	$	(6,275	)

Net loss per share attributable to RigNet, Inc. common stockholders, basic	$	(0.23	)	$	(0.09	)	$	(0.58	)	$	(0.44	)	$	(0.23	)	$	(0.24	)	$	(0.54	)	$	(0.35	)

Net loss per share attributable to RigNet, Inc. common stockholders, diluted	$	(0.23	)	$	(0.09	)	$	(0.58	)	$	(0.44	)	$	(0.23	)	$	(0.24	)	$	(0.54	)	$	(0.35	)

Weighted average shares outstanding, basic		18,086			17,782			17,982			17,677			18,639			17,985			18,394			17,929

Weighted average shares outstanding, diluted		18,086			17,782			17,982			17,677			18,639			17,985			18,394			17,929

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

RIGNET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended September 30,						Six Months Ended June 30,
	2017			2016			2018			2017
	(in thousands)						(in thousands)
Cash flows from operating activities:
Net loss	$	(10,390	)	$	(7,571	)	$	(9,825	)	$	(6,197	)
Adjustments to reconcile net loss to net cash provided by operations:
Depreciation and amortization		22,867			25,561			16,343			14,868
Impairment of intangible assets		—			397
Stock-based compensation		2,949			2,708			3,282			1,942
Amortization of deferred financing costs		192			132			102			151
Deferred taxes		(271	)		(1,461	)		66			74
Change in fair value ofearn-out/contingent consideration		(846	)		(1,279	)		2,800			(846	)
Accretion of discount of contingent consideration payable for acquisitions		417			378			287			272
(Gain) loss on sales of property, plant and equipment, net of retirements		55			(164	)		(32	)		50
Changes in operating assets and liabilities, net of effect of acquisition:
Accounts receivable		(122	)		10,498			(12,458	)		1,777
Costs and estimated earnings in excess of billings on uncompleted contracts		716			4,078			(430	)		(894	)
Prepaid expenses and other assets		3,714			(4,927	)		(2,157	)		909
Accounts payable		1,697			(475	)		4,140			(24	)
Accrued expenses		1,733			(5,741	)		(2,948	)		(1,034	)
Deferred revenue and other assets		6,212			67			4,134			5,325
Other liabilities		(8,035	)		553			(1,975	)		(7,090	)

Net cash provided by operating activities		20,888			22,754			1,329			9,283

Cash flows from investing activities:
Acquisitions		(32,205	)		(4,841	)
Acquisitions (net of cash acquired)								(5,082	)		(4,900	)
Capital expenditures		(13,186	)		(11,152	)		(12,701	)		(6,522	)
Proceeds from sales of property, plant and equipment		274			205			170			247
Increase (decrease) in restricted cash		110			(1,098	)

Net cash used in investing activities		(45,007	)		(16,886	)		(17,613	)		(11,175	)

Cash flows from financing activities:
Proceeds from issuance of common stock		684			1,606
Proceeds from issuance of common stock net of stock witheld to cover employee taxes on stock-based compensation								57			799
Stock withheld to cover employee taxes on stock-based compensation								(1,130	)		(116	)
Subsidiary distributions tonon-controlling interest		(76	)		(197	)		(66	)		(25	)
Proceeds from borrowings		15,000			—			2,500			—
Repayments of long-term debt		(16,660	)		(9,420	)		(2,572	)		(14,503	)
Payment of financing fees		—			(100	)

Net cash used in financing activities		(1,052	)		(8,111	)		(1,211	)		(13,845	)

Net change in cash and cash equivalents		(25,171	)		(2,243	)		(17,495	)		(15,737	)

Cash and cash equivalents:
Cash and cash equivalents including restricted cash:
Balance, January 1,		57,152			60,468			36,141			58,805
Changes in foreign currency translation		919			(986	)		1,308			1,172

Balance, September 30,	$	32,900		$	57,239
Balance, June 30,							$	19,954		$	44,240

Supplemental disclosures:
Income taxes paid	$	1,515		$	5,890		$	2,262		$	1,103
Interest paid	$	1,362		$	1,527		$	1,419		$	873
Property, plant and equipment acquired under capital leases	$	—		$	335
Non-cash investing - capital expenditures accrued	$	2,785		$	653		$	2,180		$	3,595
Non-cash investing - tenant improvement allowance	$	1,728		$	—		$	—		$	1,728
Non-cash investing - contingent consideration for acquisitions	$	3,798		$	5,553		$	7,600		$	3,798
Non-cash investing and financing - stock for Cyphre Security Solutions	$	3,304		$	—
Non-cash investing and financing - stock for acquisitions							$	11,436		$	3,304
Liabilities assumed in acquisitions	$	674		$	2,408		$	5,513		$	100

							June 30, 2018			December 31, 2017
Cash and cash equivalents							$	18,366		$	34,598
Restricted cash - current portion								42			43
Restricted cash - long-term portion								1,546			1,500

Cash and cash equivalents including restricted cash							$	19,954		$	36,141

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

RIGNET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)


											Additional Paid-In Capital				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				Total Equity
	Common Stock					Treasury Stock															Shares								Amount						Shares				Amount			Capital			Deficit				Loss			Equity				Interest											Total Equity
	Shares			Amount		Shares		Amount																																					(in thousands)
	(in thousands)
Balance, January 1, 2016		17,758		$	18		—	$	—					$		143,012		$	(6,043	)			$	(13,836	)			$	123,151				$	162			$	123,313
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		213			—		—		—					1,606				—					—					1,606					—				1,606			57			—				—			—				799				—				—				799				—	799
Restricted common stock cancellations		(44	)		—		—		—				—				—			—				—				—				—
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 withheld to cover employee taxes on stock-based compensation																																			(6	)			—			6			(116	)			—			—				—				(116	)			—				(116	)
Stock-based compensation		—			—		—		—			2,708				—			—				2,708				—				2,708				—				—			—			—				1,942			—				—				1,942				—				1,942
Foreign currency translation		—			—		—		—			—				—			(1,954	)			(1,954	)			—				(1,954	)			—				—			—			—				—			—				1,766				1,766				—				1,766
Non-controlling owner distributions		—			—		—		—			—				—			—				—				(197	)			(197	)			—				—			—			—				—			—				—				—				(25	)			(25	)
Net income (loss)		—			—		—		—			—				(7,742	)		—				(7,742	)			171				(7,571	)			—				—			—			—				—			(6,275	)			—				(6,275	)			78				(6,197	)

Balance, September 30, 2016		17,927		$	18		—	$	—		$	147,326			$	(13,785	)	$	(15,790	)		$	117,769			$	136			$	117,905
Balance, June 30, 2017																																			18,225			$	18			6		$	(116	)		$	153,951		$	(23,825	)		$	(16,205	)		$	113,823			$	228			$	114,051

Balance, January 1, 2017		17,933		$	18		—	$	—		$	147,906			$	(17,550	)	$	(17,971	)		$	112,403			$	175			$	112,578
Balance, January 1, 2018																																			18,233			$	18			6		$	(116	)		$	155,829		$	(33,726	)		$	(14,806	)		$	107,199			$	78			$	107,277
Issuance of common stock upon the exercise of stock options		58			—		—		—			800				—			—				800				—				800				8				—			—			—				57			—				—				57				—				57
Issuance of common stock upon the vesting of Restricted Stock Units, net of share cancellations		48			—		—		—			—				—			—				—				—				—				330				—			—			—				—			—				—				—				—				—
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	)
Issuance of common stock for acquisitions																																			789				1			—			—				11,435			—				—				11,436				—				11,436
Stock withheld to cover employee taxes on stock-based compensation																																			—				—			84			(1,130	)			—			—				—				(1,130	)			—				(1,130	)
Stock-based compensation		—			—		—		—			2,949				—			—				2,949				—				2,949				—				—			—			—				3,282			—				—				3,282				—				3,282
Cumulative effect adjustment from implementation of ASU2016-16																																			—				—			—			—				—			(338	)			—				(338	)							(338	)
Foreign currency translation		—			—		—		—			—				—			3,503				3,503				—				3,503				—				—			—			—				—			—				(592	)			(592	)			—				(592	)
Non-controlling owner distributions		—			—		—		—			—				—			—				—				(76	)			(76	)			—				—			—			—				—			—				—				—				(66	)			(66	)
Net income (loss)		—			—		—		—			—				(10,507	)		—				(10,507	)			117				(10,390	)			—				—			—			—				—			(9,885	)			—				(9,885	)			60				(9,825	)

Balance, September 30, 2017		18,225		$	18		6	$	(116	)	$	154,959			$	(28,057	)	$	(14,468	)		$	112,336			$	216			$	112,552
Balance, June 30, 2018																																			19,360			$	19			90		$	(1,246	)		$	170,603		$	(43,949	)		$	(15,398	)		$	110,029			$	72			$	110,101

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

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Basis of Presentation

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 Rule10-01 of RegulationS-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, ~~2016~~2017 included in the Company’s Annual Report on Form10-K filed with the Securities and Exchange Commission on March 6, ~~2017.~~2018.

Significant Accounting Policies

Please refer to RigNet’s Annual Report on Form10-K for fiscal year ~~2016~~2017 for information regarding the Company’s accounting policies.

Revenue Recognition - Revenue from Contracts with Customers

Revenue is recognized to depict the transfer of promised goods or services in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.

Revenue Recognition - Managed Services and Applications andInternet-of-Things

Managed Services and Applications andInternet-of-Things customers are primarily served under fixed-price contracts, either on a monthly or day rate basis or for equipment sales and consulting services. 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 up 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 permit early termination 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).

Performance Obligations Satisfied Over Time—The delivery of service represents the single performance obligation under Managed Services and Applications andInternet-of-Things contracts. Revenue for contracts is generally recognized over time as service is transferred to the customer and the Company expects to be entitled to the agreed monthly or day rate in exchange for those services.

Performance Obligations Satisfied at a Point in Time—The delivery of equipment represents the single performance obligation under equipment sale contracts. Revenue for equipment sales is generally recognized upon delivery of equipment to customers.

Revenue Recognition – Systems Integration

Revenues related to long-term, fixed-price Systems Integration contracts for customized network solutions are recognized based on the percentage of completion for the contract. At any point, RigNet has numerous contracts in progress, all of which are at various stages of completion. Accounting for revenues and profits on long-term contracts requires estimates of total estimated contract costs and estimates of progress toward completion to determine the extent of revenue and profit recognition.

Performance Obligations Satisfied Over Time— The delivery of a Systems Integration solution represents the single performance obligation under Systems Integration contracts. Progress towards completion on fixed price contracts is measured based on the ratio of costs incurred to total estimated contract costs (thecost-to-cost method). These estimates may be revised as additional information becomes available or as specific project circumstances change.

The Company reviews all material contracts on a monthly basis and revises the estimates as appropriate for developments such as, providing services, purchasing third-party materials and equipment at costs differing from those previously estimated, and incurring or expecting to incur schedule issues. Changes in estimated final contract revenues and costs can either increase or decrease the final estimated contract profit or loss. Profits are recorded in the period in which a change in estimate is recognized, based on progress achieved through the period of change. Anticipated losses on contracts are recorded in full in the period in which they become evident. Revenue recognized in excess of amounts billed is classified as a current asset under costs and estimated earnings in excess of billings on uncompleted contracts.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Systems Integration contracts are billed in accordance with the terms of the contract which are typically either based on milestones or specified time intervals. As of June 30, 2018 and December 31, 2017, the amount of costs and estimated earnings in excess of billings on uncompleted contracts related to Systems Integration projects was $3.7 million and $2.4 million, respectively. Under long-term contracts, amounts recorded in costs and estimated earnings in excess of billings on uncompleted contracts may not be realized or paid, respectively, within aone-year period. As of June 30, 2018 and December 31, 2017, $3.3 million and $0.4 million, respectively, of amounts billed to customers in excess of revenue recognized to date are classified as a current liability, under deferred revenue. All of the billings in excess of costs as of December 31, 2017 were recognized as revenue during the six months ended June 30, 2018.

Variable Consideration – Systems Integration - The Company records revenue on contracts relating to certain probable claims and unapproved change orders by including in revenue an amount less than or equal to the amount of costs incurred to date relating to these probable claims and unapproved change orders, thus recognizing no profit until such time as claims are finalized or change orders are approved. The amount of unapproved change orders and claim revenues is included in the Company’s Condensed Consolidated Balance Sheets as part of costs and estimated earnings in excess of billings on uncompleted contracts. No material unapproved change orders and claims revenue were included in costs and estimated earnings in excess of billings on uncompleted contracts as of June 30, 2018 and December 31, 2017. As new facts become known, an adjustment to the estimated recovery is made and reflected in the current period.

Backlog - As of June 30, 2018, we have backlog for our percentage of completion projects of $19.6 million, which will be recognized over the remaining contract term for each contract. Percentage of completion contract terms are typically one to three years.

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards UpdateNo. 2014-09 (ASU2014-09), 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 UpdateNo. 2015-14 (ASU2015-14), Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. In March 2016, the FASB issued Accounting Standards UpdateNo. 2016-08 (ASU2016-08), 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 UpdateNo. 2016-10 (ASU2016-10) and Accounting Standards UpdateNo. 2016-12 (ASU2016-12), 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 ~~will adopt~~adopted this ASU on January 1, 2018. The Company’s evaluation of this ASU included a detailed review of representative contracts from each segment and comparing historical accounting policies and practices to the new standard. The ~~Company does not expect the~~ adoption of this ASU todid not have aany material impact on ~~its~~the Company’s condensed consolidated financial statements.

In February 2016, the FASB issued Accounting Standards UpdateNo. 2016-02 (ASU2016-02), Leases. This ASU is effective for annual reporting periods beginning after December 15, 2018. This ASU introduces a new lessee model that generally brings leases on the balance sheet. ~~The Company is currently in the process of evaluating the impact the adoption of this ASU will have~~Based on the Company’s current leases, the Company anticipates the new guidance will require additional assets and liabilities on the condensed consolidated balance sheet; however, the Company has not yet completed an estimation of such amount and we are still evaluating the overall impact of the new guidance on our condensed consolidated financial ~~statements.~~

~~In March 2016, the FASB issued Accounting Standards UpdateNo. 2016-09~~ ~~(ASU2016-09),~~ ~~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,~~statements 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 ASU2016-09~~ in the second quarter of 2016 and 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.related disclosures.

In August 2016, the FASB issued Accounting Standards UpdateNo. 2016-15 (ASU2016-15), 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. 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~~adopted this ASU on January 1, 2018. The adoption of this ASU ~~will~~did not have any material impact on the Company’s condensed consolidated financial statements.

In October 2016, the FASB issued Accounting Standards UpdateNo. 2016-16 (ASU2016-16), Income Taxes: Intra-Entity Transfer of Assets Other Than Inventory. The new ASU requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, rather than the previous requirement to defer recognition of current and deferred income taxes for an intra-entity asset transfer until the asset had been sold to an outside party. The ASU is effective for annual

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

and interim reporting periods beginning after December 15, 2017. The Company adopted this ASU on January 1, 2018 using the modified retrospective method, through a $0.3 million cumulative effect that directly lowered accumulated deficit. The adoption of this ASU did not have any material impact on the Company’s condensed consolidated financial statements.

In November 2016, the FASB issued Accounting Standards UpdateNo. 2016-18 (ASU2016-18), 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 adopted this ASU on January 1, 2018. The adoption of this ASU did not have any material impact on the Company’s condensed consolidated financial statements.

In June 2018, the FASB issued Accounting Standards UpdateNo. 2018-07 (ASU2018-07), which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The ASU is effective for annual and interim reporting periods beginning after December 15, 2018. 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.

Note 2 – Business Combinations

Auto-Comm and SAFCON

On April 18, 2018, RigNet completed the separate acquisitions of Automation Communications Engineering Corp. (Auto-Comm) and Safety Controls, Inc. (SAFCON) for an aggregate purchase price of $6.3 million. Of this aggregate purchase price, RigNet paid $2.2 million in cash and $4.1 million in stock.

Auto-Comm provides a broad range of communications services, for both onshore and offshore remote locations, to the oil and gas industry. Auto-Comm brings over 30 years of systems integration experience in engineering and design, installation, testing, and maintenance. SAFCON offers a diverse set of safety, security, and maintenance services to the oil and gas industry. Auto-Comm and SAFCON have developed strong relationships with major energy companies that complement the relationships that RigNet has established over the years. Auto-Comm and SAFCON are based in Louisiana.

The assets and liabilities of Auto-Comm and SAFCON 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 related to the identifiable intangible assets and effects of income taxes resulting from the transaction, are still being finalized.

The goodwill of $1.0 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 Auto-Comm and SAFCON, 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 nondeductible for income tax purposes. The acquisition of Auto-Comm and SAFCON, including goodwill, is included in the Company’s condensed consolidated financial statements as of the acquisition date and is primarily reflected in the Systems Integration segment.


	Weighted Average Estimated Useful Life (Years)		Fair Market Values
			(in thousands)
Current assets					$	4,559
Property and equipment						484
Trade name		7		540
Customer relationships		7		980

Total identifiable intangible assets						1,520
Goodwill						1,003
Current liabilities						(909	)
Deferred tax liability						(319	)

Total purchase price					$	6,338

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Intelie

On March 23, 2018, RigNet completed its acquisition of Intelie Soluções Em Informática S.A (Intelie), for an estimated aggregate purchase price of $18.1 million. Of this aggregate purchase price, RigNet paid R$10.6 million (BRL) (or approximately $3.2 million) in cash, $7.3 million in stock and expects to pay $7.6 million worth of RigNet stock as contingent considerationearn-out, estimated as of the date of acquisition. The initial estimate of theearn-out payable was preliminary and remains subject to change based on the achievement of certain post-closing performance targets under the acquisition agreement. The maximumearn-out is $17.0 million. Intelie is a real-time, predictive analytics company that combines an operational understanding with a machine learning approach. Intelie facilitates innovation via Intelie Pipes, a distributed query language with a complex event processor to aggregate and normalize real-time data from a myriad of data sources. This technology enables the Intelie LIVE platform to solve data integration, data quality, data governance and monitoring problems. Intelie LIVE is an operational intelligence platform that empowers clients to make timely, data-driven decisions in mission-critical real-time operations, including drilling, and longer-term, data-intensive projects, such as well planning. Intelie is based in Brazil.

The assets and liabilities of Intelie 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 related to contingent consideration, identifiable intangible assets, and the effects of income taxes resulting from the transaction, are still being finalized.

Theearn-out for Intelie 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, 2018, the fair value of theearn-out was $7.6 million. During the three and six months ended June 30, 2018, RigNet recognized accreted interest expense on the Intelieearn-out of $0.1 million with corresponding increases to other liabilities. Portions of theearn-out are payable in RigNet stock on the first, second and third anniversary of the closing of the acquisition based on certain post-closing performance targets under the acquisition agreement.

The goodwill of $10.7 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 Intelie, 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 Intelie, including goodwill, is included in the Company’s condensed consolidated financial statements as of the acquisition date and is reflected in the Applications andInternet-of-Things segment.


	Weighted Average Estimated Useful Life (Years)		Fair Market Values
			(in thousands)
Current assets					$	589
Property and equipment						73
Trade name		7		2,300
Technology		7		8,400
Customer relationships		7		320

Total identifiable intangible assets						11,020
Goodwill						10,744
Current liabilities						(460	)
Deferred tax liability						(3,825	)

Total purchase price					$	18,141	(a)

(a)	Includes $7.6 million in contingent considerationearn-out estimated as of the date of acquisition.

Actual and Pro Forma Impact of the 2018 Acquisitions

The 2018 acquisitions of Auto-Comm, SAFCON and Intelie contributed revenue and net income of $6.1 million and $0.8 million, respectively, for the three months ended June 30, 2018. The 2018 acquisitions of Auto-Comm, SAFCON and Intelie contributed revenue and net income of $6.2 million and $0.8 million, respectively, for the six months ended June 30, 2018.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table represents supplemental pro forma information as if the 2018 acquisitions had occurred on January 1, 2017.


	Three Months Ended June 30,			Three Months Ended June 30,			Six Months Ended June 30,			Six Months Ended June 30,
	2018			2017			2018			2017
	(in thousands, except per share amounts)
Revenue	$	60,547		$	53,513		$	118,297		$	105,715
Expenses		64,784			57,645			127,593			111,796

Net loss	$	(4,237	)	$	(4,132	)	$	(9,296	)	$	(6,081	)

Net loss attributable to RigNet, Inc. common stockholders	$	(4,267	)	$	(4,171	)	$	(9,356	)	$	(6,159	)

Net loss per share attributable to RigNet, Inc. common stockholders:
Basic	$	(0.23	)	$	(0.23	)	$	(0.51	)	$	(0.34	)

Diluted	$	(0.23	)	$	(0.23	)	$	(0.51	)	$	(0.34	)

The Company incurred acquisition related costs of $0.3 million and $1.1 million in the three and six months ended June 30, 2018, respectively, reported in general and administrative costs.

Energy Satellite Services

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.~~industry for remote pipeline monitoring. The assets acquired enhance RigNet’s Supervisory Control and Data Acquisition (SCADA) customer portfolio, and strengthen the Company’s US land andInternet-of-Things (IoT) market position. The Company paid $22.2 million in cash for the ESS assets. ESS is based in Texas.

The assets and liabilities of ESS 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 ~~$8.6~~$8.5 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 ESS, 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 ESS, including goodwill, is included in the Company’s condensed consolidated financial statements as of the acquisition date and is reflected in the Applications andInternet-of-Things 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					$	168
Accounts receivable												$	392
Property and equipment						1,000							1,000
Covenant Not to Compete		5		3,040
Customer Relationships		7		9,870
Covenant not to compete									5		3,040
Customer relationships									7		9,870

Total identifiable intangible assets						12,910							12,910
Goodwill						8,613							8,465
Accounts Payable						(491	)
Accounts payable													(567	)

Total purchase price					$	22,200						$	22,200

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Data Technology Solutions

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 paid $5.1 million in cash for the DTS assets. DTS is based in Louisiana.

The assets and liabilities of DTS 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 ~~$0.6~~$0.7 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 DTS, 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 DTS, 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.

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~


	Weighted Average Estimated Useful Life (Years)	Fair Market Values				Fair Market Values
		(in thousands)				(in thousands)
Property and equipment			$	4,553		$	4,553
Goodwill				635			704
Accounts Payable				(83	)
Accounts payable							(152	)

Total purchase price			$	5,105		$	5,105

Cyphre Security Solutions

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 ~~September~~June 30, ~~2017,~~2018, the fair value of the contingent consideration was ~~$3.9~~$4.0 million. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, 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 Applications andInternet-of-Things segment.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


	Weighted Average Estimated Useful Life (Years)		Fair Market Values					Weighted Average Estimated Useful Life (Years)		Fair Market Values
			(in thousands)							(in thousands)
Property and equipment					$	18						$	18
Trade Name		7		1,590
Trade name									7		1,590
Technology		7		5,571					7		5,571
Customer Relationships		7		332
Customer relationships									7		332

Total identifiable intangible assets						7,493							7,493
Goodwill						4,591							4,591
Accrued Expenses						(100	)
Accrued expenses													(100	)

Total purchase price					$	12,002	(a)					$	12,002	(a)

(a)	Includes $3.8 million in contingent consideration estimated as of the date of acquisition.

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

Actual and Pro Forma Impact of the 2017 Acquisitions

The 2017 acquisitions of ESS, DTS and Cyphre contributed ~~$2.4~~$3.5 million of revenue ~~for the three~~ and ~~nine months ended September 30, 2017. The 2017 acquisitions contributed $0.6 million and $0.3~~$2.8 million to net income for the three ~~and nine~~ months ended ~~September~~June 30, 2018. The 2017 ~~respectively.~~acquisitions of ESS, DTS and Cyphre contributed $6.3 million of revenue and $4.7 million to net income for the six months ended June 30, 2018. Cyphre’s revenue and net loss were zero and $0.3 million, respectively, for the three and six months ended June 30, 2017.

The following table represents supplemental pro forma information as if the 2017 acquisitions had occurred on January 1, ~~2016.~~2017.

   Three Months Ended September 30,    Nine Months Ended September 30,
   2017    2016    2017    2016
   (in thousands, except per share amounts)
Revenue
   $ 52,150    $ 54,722    $ 158,085    $ 180,602
Expenses
   55,993    54,552    165,484    183,575








Net loss
   $ (3,843 )    $ 170    $ (7,399 )    $ (2,973 )








Net loss attributable to RigNet, Inc. common stockholders
   $ (3,882 )    $ (40 )    $ (7,516 )    $ (3,144 )








Net loss per share attributable to RigNet, Inc. common stockholders:

Basic
   $ (0.21 )    $ (0.00 )    $ (0.42 )    $ (0.18 )








Diluted
   $ (0.21 )    $ (0.00 )    $ (0.42 )    $ (0.18 )

For the three and nine months ended September 30, 2017, RigNet incurred $0.8 million and $2.7 million, respectively, 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 these acquisitions will be incurred and recorded as expense during the remainder of 2017.

~~TECNOR~~

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 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 theearn-out~~ ~~payable was preliminary and remains subject to change based on the achievement of certain post-closing performance targets under the acquisition agreement. The maximumearn-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.

~~Theearn-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 Loss in each reporting period. As of September 30, 2017, the fair value of the~~earn-out~~ ~~was $5.2 million. There was a $0.8 million reduction in fair value to the TECNORearn-out~~ for the nine months ended September 30, 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 forecast of TECNOR’s future achievement of the post-closing performance targets. During the three and nine months ended September 30, 2017, RigNet recognized accreted interest expense on the TECNOR~~earn-out~~ ~~liability of $0.1 million and $0.4 million, respectively, with corresponding increases to other current liabilities. Theearn-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 Managed Services segment.

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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



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


Total purchase price
         $ 11,394 (a)

~~(a)~~

~~Includes a $6.5 million contingent considerationearn-out,~~ ~~estimated as of the date of acquisition.~~

For the nine months ended September 30, 2016, 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.

~~Actual and Pro Forma Impact of the TECNOR Acquisition~~

TECNOR’s revenue and net loss were $2.0 million and $0.7 million, respectively, for the three months ended September 30, 2016. TECNOR’s revenue and net loss were $7.1 million and $0.1 million, respectively, for the nine months ended September 30, 2016.

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

~~Adjusting interest expense to remove interest on a debt instrument previously held by TECNOR; and~~

~~Removing nonrecurring transaction costs incurred in 2016 prior to acquisition.~~

Nine Months Ended
September 30,

   2016

(in thousands, except per
share amounts)

Revenue
   $ 168,899
Expenses
   176,267


Net loss
   $ (7,368 )


Net loss attributable to RigNet, Inc. common stockholders
   $ (7,539 )


Net loss per share attributable to RigNet, Inc. common stockholders:

Basic
   $ (0.43 )


Diluted
   $ (0.43 )

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~


	Three Months Ended June 30,			Six Months Ended June 30,
	2017			2017
	(in thousands, except per share amounts)
Revenue	$	53,020		$	105,935
Expenses		56,208			109,491

Net loss	$	(3,188	)	$	(3,556	)

Net loss attributable to RigNet, Inc. common stockholders	$	(3,227	)	$	(3,634	)

Net loss per share attributable to RigNet, Inc. common stockholders:
Basic	$	(0.18	)	$	(0.20	)

Diluted	$	(0.18	)	$	(0.20	)

Note 3 – Business and Credit Concentrations

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

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Interest Rate Risk

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 interest rate risk, but evaluates this on a regular basis and may utilize financial instruments in the future if deemed necessary.

Foreign Currency Risk

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~~Krone, the British Pound Sterling and the ~~British pound sterling~~Brazilian Real 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 loss in the Company’s condensed consolidated financial statements.

Credit Risk

Credit risk, with respect to accounts receivable, is due to the limited number of customers concentrated in the oil and gas, ~~industry.~~maritime, pipeline, engineering and construction industries. 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.

Liquidity Risk

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 ~~2017~~2018 or ~~2016.~~2017. 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).

Note 4 – Goodwill and Intangibles

Goodwill

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.

Due to the change in segments (see Note 12 – Segment Information) and reporting units during the third quarter of 2017, the Companyre-allocated goodwill to each reporting unit based on relative fair value.

The Company acquired ~~$8.6~~$1.0 million of goodwill in the Systems Integration segment from the Auto-Comm and SAFCON acquisition completed on April 18, 2018 (see Note 2 – Business Combinations).

The Company acquired $10.7 million of goodwill in the Apps & IoT segment from the Intelie acquisition completed on March 23, 2018 (see Note 2 – Business Combinations).

The Company acquired $8.5 million of goodwill in the Apps & IoT segment from the ESS acquisition completed on July 28, 2017 (see Note 2 – Business Combinations).

The Company acquired ~~$0.6~~$0.7 million of goodwill in the Managed Services segment from the DTS acquisition completed on July 24, 2017 (see Note 2 – Business Combinations).

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

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~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 onas of July 31^stof each year, with the most recent annual test being performed as of July 31, 2017. The July 2017 annual test resulted in no impairment as the fair value of each reporting unit substantially exceeded the carrying value plus goodwill of that reporting unit.

As of November 30, 2017, the Company’s latest completed interim goodwill impairment testing, the fair values of the Company’s reporting units are substantially in excess of their carrying values. As such, the test resulted in no impairment. The November 30, 2017 interim test was conducted due to a change in segments after the Company completed the acquisition of ESS.

No impairment indicators have been identified in any reporting unit as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016.~~2017.

As of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, goodwill was ~~$37.1~~$48.5 million and ~~$22.0~~$37.1 million, respectively. Goodwill increases or decreases in value due to the effect of foreign currency translation, and increases with acquisitions.

Intangibles

Intangibles consist of customer relationships,~~non-competes,~~ brand name, backlog, technology ~~backlog~~ and licenses acquired as part of the Company’s acquisitions. Intangibles also includeinternal-use software. The Company’s intangibles have useful lives ranging from ~~1.7~~5.0 to 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.

No impairment indicators have been identified in any reporting unit as of ~~September~~June 30, ~~2017.~~2018.

As of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, intangibles were ~~$32.3~~$38.9 million and ~~$16.0~~$30.4 million, respectively. During the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, the Company recognized amortization expense of ~~$1.9~~$2.5 million and ~~$1.3~~$1.5 million, respectively. During the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, the Company recognized amortization expense of ~~$4.7~~$4.6 million and ~~$3.9~~$2.8 million, respectively.

The following table sets forth expected amortization expense of intangibles for the remainder of ~~2017~~2018 and the following years (in thousands):


2017		1,833
2018		7,047		4,447
2019		5,988		7,532
2020		5,021		6,568
2021		4,679		6,241
2022				5,871
Thereafter		7,773		8,223

	$	32,341	$	38,882

Note 5 – Restricted Cash

As of ~~September~~June 30, ~~2017, the Company had restricted cash of $0.1 million~~2018 and ~~$1.5 million, in current and long-term assets, respectively. As of~~ December 31, ~~2016,~~2017, the Company had restricted cash of $0.1 million and $1.5 million, in current and long-term assets, respectively. The restricted cash in long-term assets was primarily used to collateralize a performance bond in the 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.~~

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 6 – Long-Term Debt

As of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the following credit facilities and long-term debt arrangements with financial institutions were in place:


	September 30,			December 31,			June 30,			December 31,
	2017			2016			2018			2017
	(in thousands)						(in thousands)
Term loan, net of unamortized deferred financing costs	$	27,757		$	34,053		$	12,096		$	14,503
Revolving loan		32,000			27,000			45,900			43,400
Capital lease		243			415			148			211

		60,000			61,468			58,144			58,114
Less: Current maturities of long-term debt		(8,418	)		(8,399	)		(4,822	)		(4,814	)
Current maturities of capital lease		(127	)		(79	)		(127	)		(127	)

	$	51,455		$	52,990		$	53,195		$	53,173

~~Term Loan~~Credit Agreement

~~As of September 30,~~On November 6, 2017, the Company ~~has a term loan (Term Loan) issued under the second~~entered into its third amended and restated credit agreement with four participating financial ~~institutions (credit agreement). On October 3, 2013,~~institutions. The credit agreement provides for a $15.0 million term loan facility (Term Loan) and an $85.0 million revolving credit facility (RCF) and matures on November 6, 2020.

The RCF contains asub-limit of up to $25.0 million for commercial andstand-by letters of credit and performance bonds. The facilities under the ~~Company amended its~~credit agreement are secured by substantially all the assets of the Company.

Under the credit agreement, both the 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~~RCF bear interest at a rate of LIBOR plus a margin ranging from ~~1.5%~~1.75% to ~~2.5%~~2.75% based on a consolidated leverage ratio ~~of funded debt to Consolidated EBITDA, anon-GAAP~~ ~~financial measure as~~ defined in the credit agreement. Interest is payable monthly ~~along with quarterly~~and principal installments of ~~$2.1~~$1.25 million ~~with~~under the ~~balance~~Term Loan are due ~~October 2018.~~quarterly. The weighted average interest rate for the three months ended ~~September~~June 30, 2018 and 2017 were 4.8% and ~~2016 was 3.2% and 2.5%~~3.1%, respectively. The weighted average interest rate for the ~~nine~~six months ended ~~September~~June 30, 2018 and 2017 were 4.5% and ~~2016 was~~ 3.1% ~~and 2.4%~~, respectively, with an interest rate of ~~3.2%~~4.8% at ~~September~~June 30, ~~2017.~~2018.

~~The~~ Term Loan ~~is secured by substantially all the assets of the Company.~~

As of ~~September~~June 30, ~~2017,~~2018, the Term Loan had an outstanding principal balance of ~~$27.9 million.~~$12.5 million, excluding the impact of unamortized deferred financing costs.

~~Revolving Loans~~RCF

As of ~~September~~June 30, 2017, under the credit agreement, the Company maintains a $75.0 million revolving credit facility, which includes a $15 million sublimit for the issuance of standby letters of credit. As of September 30, 2017, $32.02018, $45.9 million in draws remain outstanding under the RCF.

In July 2018, the Company made a draw of $10.0 million on the revolving credit facility. The revolving credit facility matures in October 2018 with any outstanding borrowings then payable. As of September 30, 2017, there were $6.3 million in standby letters of credit issued.RCF primarily to pay the TECNORearn-out.

Covenants and Restrictions

The ~~revolving loan bears an interest rate~~Company’s credit agreement contains certain covenants and restrictions, including restricting the payment of ~~LIBOR plus~~cash dividends under default and maintaining certain financial covenants such as a ~~margin ranging from 1.5% to 2.5% based on a~~consolidated leverage ratio, ~~of funded debt to Consolidated EBITDA, anon-GAAP~~ ~~financial measure as~~ defined in the credit ~~agreement. The weighted average~~agreement, of less than or equal to 2.75 to 1.0 and a consolidated fixed charge coverage ratio of not less than 1.25 to 1.0 as of June 30, 2018. If any default occurs related to these covenants, the unpaid principal and any accrued interest ~~rate for~~shall be declared immediately due and payable. As of June 30, 2018, and December 31, 2017, the ~~three months ended September 30, 2017 and 2016~~Company believes it was ~~3.2% and 2.5%, respectively. The weighted average interest rate for the nine months ended September 30, 2017 and 2016 was 3.1% and 2.4%, respectively,~~in compliance with ~~an interest rate of 3.2% at September 30, 2017.~~all covenants.

Performance Bonds and Letters of Credit

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 $5.4 million. This facility has a maturity date of October 3, 2018. As of September 30,~~facility. On November 6, 2017, ~~the amount available under~~ this facility ~~was £2.1~~became a part of the third amended and restated credit agreement and falls under the $25.0 million ~~or $2.9 million. As~~sub-limit of ~~September 30, 2017, there were $5.6 million in~~the RCF for commercial and standby letters of credit ~~issued to collateralize this~~and performance ~~bond facility.~~bonds.

As of June 30, 2018, there were no outstanding standby letters of credit. There were $2.4 million of performance bonds outstanding.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In June 2016, the Company secured a performance bond facility with a lender in the amount of $1.5 million for its 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.

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~Covenants and Restrictions~~

The Company’s credit agreement contains certain covenants and restrictions, including restricting the payment of cash dividends 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 30, 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 30, 2017, and December 31, 2016, the Company believes it was in compliance with all 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.

Debt Maturities

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

2017
   2,154
2018
   57,770
2019
   76


Total debt, including current maturities
   $ 60,000

~~New Credit Facilities~~

On November 6, 2017, the Company entered into its third amended and restated credit agreement with four participating financial institutions. The credit agreement provides for a $15.0 million term loan facility and an $85.0 million revolving credit facility and matures on November 6, 2020.

Under the credit agreement, both the term loan facility and the revolving credit facility bear interest at a rate of LIBOR plus a margin ranging from 1.75% to 2.75% based on a consolidated leverage ratio defined in the credit agreement. Interest is payable monthly and principal installments of $1.25 million under the term loan facility are due quarterly beginning March 31, 2018. The credit agreement incorporates two financial covenants, including a consolidated leverage ratio and a consolidated fixed charge coverage ratio. The revolving credit facility contains a~~sub-limit~~ ~~of up to $25.0 million for commercial andstand-by~~ ~~letters of credit.~~

~~The facilities under the credit agreement are secured by substantially all the assets of the Company.~~


2018		2,472
2019		4,914
2020		50,758

Total debt, including current maturities	$	58,144

Note 7 – Fair Value Disclosures

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

•

Cash and Cash Equivalents— Reported amounts approximate fair value based on quoted market prices (Level 1).

•

Restricted Cash— Reported amounts approximate fair value.

•

Accounts Receivable— Reported amounts, net of the allowance for doubtful accounts, approximate fair value due to the short-term nature of these assets.

•

Accounts Payable, Including Income Taxes Payable and Accrued Expenses— Reported amounts approximate fair value due to the short-term nature of these liabilities.

•

Long-Term Debt— The carrying amount of the Company’s floating-rate debt approximates fair value since the interest rates paid are based on short-term maturities and recent quoted rates from financial institutions. The estimated fair value of debt was calculated based upon observable (Level 2) inputs regarding interest rates available to the Company at the end of each respective period.

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

The Company’snon-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.

Theearn-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 Loss in each reporting period. As of ~~September~~June 30, ~~2017,~~2018, the fair value of theearn-out was ~~$5.2 million.~~$8.0 million, which was paid in July 2018. As of ~~December 31, 2016,~~June 30, 2018, the fair value ~~of theearn-out~~ ~~was $5.7 million. There was a $0.8 million reduction in fair value to the TECNORearn-out~~for the ~~nine months ended September 30, 2017 recorded as a reduction of other current liabilities and a decrease~~agreement to ~~general and administrative expense in the Corporate segment.~~collect certain accounts receivable was $0.8 million. The change in fair value in the three and six months ended June 30, 2018 was due to ~~a forecast~~2^nd quarter 2018 negotiations with the sellers of ~~TECNOR’s future achievement~~TECNOR on the amount of the ~~post-closing performance targets.~~earn-out. During the three and ~~nine~~six months ended ~~September~~June 30, 2018, RigNet recognized accreted interest expense on the TECNORearn-out liability of $0.1 million with corresponding increases to other liabilities. During the three and six months ended June 30, 2017, RigNet recognized accreted interest expense on the TECNORearn-out liability of $0.1 million and ~~$0.4~~$0.2 million, ~~respectively, with corresponding increases~~respectively. Additionally, the Company has agreed to ~~other liabilities. (see Note 2 – Business Combinations).~~pay the sellers of TECNOR up to $1.0 million in either cash or RigNet stock payable in 2019 for the collection of certain accounts receivable balances.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 8 – Income Taxes

The Company’s effective income tax rate was ~~(22.2%)~~17.7% and ~~(11.5%)~~3.2% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, respectively. The Company’s effective income tax rate was ~~(59.5%)~~2.3% and ~~(54.7%~~(5.3%) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, respectively. The Company’s effective tax rate is affected by factors including changes in applicable laws and regulations, 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 actualyear-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 ~~$3.2~~$3.4 million in unrecognized tax benefits, including related interest and penalties, may be necessary within the coming year due to lapse in statute of limitations.

On December 22, 2017 the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (The Act), making broad and complex changes to the U.S. tax code.

The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. For various reasons that are discussed below, the Company has not completed its accounting for the income tax effects of certain elements of the Tax Act. If the Company was able to make reasonable estimates of the effects of elements for which its analysis is not yet complete, the Company recorded provisional adjustments. If the Company was not yet able to make reasonable estimates of the impact of certain elements, the Company has not recorded any adjustments related to those elements and has continued accounting for them in accordance with ASC 740 on the basis of the tax laws in effect before the Tax Act.

The Company has not yet completed the accounting for the income tax effects of the Tax Act and all the amounts recorded remain provisional. As noted in the Company’s 2017 Annual report on form10-K filed with the SEC on March 6, 2018, the Company was able to make reasonable estimates and recorded provisional adjustments as follows:

Reduction of US Federal Corporate Tax Rate: In the fourth quarter of 2017, the Company recorded a provisional decrease of $8.2 million to deferred tax expense related to the US federal corporate tax rate reduction. The Company has not made additional measurement-period adjustments during the quarter, because the estimate may be affected by other analyses related to the Tax Act.

Deemed Repatriation Transition Tax: In the fourth quarter of 2017, the Company recorded a provisional Transition Tax obligation of $3.8 million, which was fully offset by current losses and foreign tax credits. On August 1, 2018 the Department of Treasury and the Internal Revenue Service issued proposed regulations which provide additional guidance on the provisions of the Transition Tax under Section 965, including the election not to apply net operating loss deductions against the Transition Tax. The Company has not made any additional measurement-period adjustments related to these items during the quarter because it is still interpreting the application of this recent guidance. However, the Company is continuing to gather additional information to more precisely compute the Transition Tax and does expect to complete its accounting within the prescribed measurement period.

Global Intangible Low Taxed Income (GILTI):In the fourth quarter of 2017, the Company was not able to reasonably estimate the effects for GILTI. Therefore, no provisional adjustment was recorded. Because of the complexity of the new GILTI tax rules, the Company is continuing to evaluate this provision of the Act and the application of ASC 740. Under U.S. GAAP, the Company is allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the period cost method) or (2) factoring such amounts into a company’s measurement of its deferred taxes (the deferred method). The Company’s selection of an accounting policy related to the new GILTI tax rules will depend, in part, on analyzing its global income to determine whether it expects to have future U.S. inclusions in taxable income related to GILTI and, if so, what the impact is expected to be. Because whether the Company expects to have future U.S. inclusions in taxable income related to GILTI depends on a number of different aspects of its estimated future results of global operations, the Company is not yet able to reasonably estimate the long-term effects of this provision of the Act. Therefore, the Company has not recorded any potential deferred tax effects related to GILTI in the financial statements and has not made a policy decision regarding whether to record deferred taxes on GILTI or use the period cost method. The Company prepared an estimate for current GILTI impact, which was determined to be zero. The Company expects to complete its accounting within the prescribed measurement period.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company is continuing to evaluate all of the provisions of U.S. Tax Reform and expects to finalize its assessment during theone-year measurement period provided by SAB 118. During the six months ended June 30, 2018, the Company has not made any significant changes to its initial assessments made during the fourth quarter of 2017.

Note 9 – Stock-Based Compensation

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, the Company granted a total of ~~226,974~~357,877 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) ~~125,852~~141,068 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) ~~33,586~~11,188 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 over a two year period of continued employment, with 50% of the RSUs vesting on each of the ~~third anniversary~~first two anniversaries of the grant date, (iii) 48,179 RSUs to outside directors that vest in 2019 and ~~are subject~~(iv) 157,442 unrestricted stock grants to ~~continued employment~~certain officers and ~~certain performance based targets. The ultimate number of PSUs issued is based on a multiple determined by certain performance based targets.~~employees that vested immediately.

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.~~award, net of forfeitures.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017, 126,788~~2018, 34,483 RSUs and ~~28,445~~23,123 stock options were forfeited.

Stock-based compensation expense related to the Company’s stock-based compensation plans for the ~~three~~six months ended ~~September~~June 30, 2018 and 2017 ~~and 2016~~ was ~~$1.0~~$3.3 million and ~~$0.9 million, respectively. Stock-based compensation expense related to the Company’s stock-based compensation plans for the nine months ended September 30, 2017 and 2016 was $2.9 million and $2.7~~$1.9 million, respectively. As of ~~September~~June 30, ~~2017,~~2018, there was ~~$8.3~~$3.2 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 ~~1.8~~2.0 years.

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

Note 10 – Earnings (loss) per Share

Basic earnings (loss) per share (EPS) are computed by dividing 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 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, 2018, there were approximately 580,410 and 636,460 potentially issuable shares excluded from the Company’s calculation of diluted EPS that were excluded because the Company incurred a loss in the period and to include them would have been anti-dilutive.

For the three and six months ended June 30, 2017, there were approximately ~~723,296~~541,964 and ~~644,858~~575,214 potentially issuable shares, respectively, excluded from the Company’s calculation of diluted EPS that were excluded because the Company incurred a loss in the period and to include them would have been anti-dilutive.

For the three and nine months ended September 30, 2016, there were approximately 1,919,696 and 1,228,397 potentially issuable shares, respectively, excluded from the Company’s calculation of diluted EPS that were excluded because the Company incurred a loss in the period and to include them would have been anti-dilutive.

Note 11 – Commitments and Contingencies

Legal Proceedings

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Global Xpress (GX) Dispute

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~~Inmarsat initiated arbitration regarding 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. In addition, the Company has filed certain counterclaims against Inmarsat. The parties have agreed to divide the arbitration into two phases, with the first phase to decide if RigNet’s purchase obligation ever commenced and the second phase to address RigNet’s counterclaims against Inmarsat. The parties attended an arbitration hearing on the first phase in June 2018 and are currently awaiting the decision of the arbitration panel.

The Company has incurred legal expenses of ~~$0.8~~$1.4 million in connection with the GX dispute for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. 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.

Other Litigation

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.

Sales Tax Audit

The company ~~is undergoing~~has received a routine sales tax audit innotice from a state where itthe Company has ~~operations~~operations. Per the notice, the audit can cover up to a four-year period. The Company is in the early stages of the process, and does not have any estimates of further exposure, if any, 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 three months. The Company does not believe that the outcome of the audit will result in a material impact to the consolidated financial statements.

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~Contractual Dispute Settlement~~

The Company’s Systems Integration 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 first quarter of 2016. In the 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 from the customer acknowledging completion of the project. The total loss incurred over the life of this project amounted to $11.2 million.

~~The Company incurred legal expenses of $0.2 million in connection with the dispute for the nine months ended September 30, 2016.~~tax years under review.

Operating Leases

The Company leases office space under lease agreements expiring on various dates through 2025. For the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, the Company recognized expense under operating leases of ~~$0.9~~$0.7 million and ~~$1.2~~$1.0 million, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, the Company recognized expense under operating leases of ~~$2.9~~$1.4 million and ~~$3.4~~$2.0 million, respectively.

As of ~~September~~June 30, ~~2017,~~2018, future minimum lease obligations for the remainder of ~~2017~~2018 and future years were as follows (in thousands):


2017		794
2018		1,871		1,425
2019		1,316		1,805
2020		886		905
2021		468		657
2022				671
Thereafter		1,750		1,821

	$	7,085	$	7,284

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Commercial Commitments

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

As of ~~September~~June 30, ~~2017,~~2018, the Company had the following commercial commitments related to satellite and network services for the remainder of ~~2017~~2018 and the future years thereafter (in thousands):


2017		4,501
2018		13,494	12,280
2019		5,920		10,176
2020		473		901
2021		455		109

	$	24,843	$	23,466

The Company is no longer reporting $65.0 million in the above table for capacity from Inmarsat’s GX network. Please see paragraph “Global ~~Express~~Xpress (GX) Dispute” above for details of the ongoing arbitration and the Company’s notice to terminate the contract with Inmarsat.

Note 12 – Segment Information

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.

The Company previously operated under two reportable segments: Managed Services and Systems Integration (previously called SI&A). During the third quarter of 2017, after the Company completed the ESS acquisition, the Company reorganized its

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

business and reportable segments. Applications andInternet-of-Things is now managed and presented as a separate segment, and was previously presented in the Managed Services segment. The reporting on this new segment will help track the Company’s progress related to this important area of focus within the business that is intended to enhance the value of the services the Company delivers to customers, including enhancing the value of the managed communications services the Company delivers to customers around the world. All historical segment financial data included herein has been recast to conform to the current year presentation.

RigNet considers its business to consist of the following segments:

•

Managed Services.The Managed Services segment provides remote communications, telephony and technology services for offshore and onshore drilling rigs and production facilities, support vessels, and other remote sites.

•

Applications andInternet-of-Things (Apps & IoT).The Apps & IoT segment provides applicationsover-the-top of the Managed Services including Supervisory Control and Data Acquisition (SCADA) and Software as a Service (SaaS) offerings including BlackTIE^® encryption, weather monitoring primarily in the North Sea (METOCEAN), real-time predictive analytics (Intelie Pipes and Intelie LIVE) and certain other ~~value added~~value-added services such as Adaptive Video Intelligence (AVI).

•

Systems Integration.The Systems Integration segment provides design and implementation services for customer telecommunications systems. Solutions are delivered based on the customer’s specifications, adhering to international industry standards and best practices. Project services may include consulting, design, engineering, project management, procurement, testing, installation, commissioning and maintenance.

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

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

The Company’s business segment information as of and for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, is presented below.

   Three Months Ended September 30, 2017
   Managed
Services    Applications
and
Internet-of-
Things    Systems
Integration Corporate and
Eliminations Consolidated
Total
   (in thousands)
Revenue
   $ 40,243    $ 4,985    $ 5,616 $ —   $ 50,844
Cost of revenue (excluding depreciation and amortization)
   24,902    3,394    4,089 —   32,385
Depreciation and amortization
   5,263    835    615 1,286 7,999
Selling, general and administrative
   3,013    363    280 9,755 13,411






Operating income (loss)
   $ 7,065    $ 393    $ 632 $ (11,041 ) $ (2,951 )






Capital expenditures
   5,655    198    —   —   5,853
   Three Months Ended September 30, 2016
   Managed
Services    Applications
and
Internet-of-
Things    Systems
Integration Corporate and
Eliminations Consolidated
Total
   (in thousands)
Revenue
   $ 45,653    $ 1,552    $ 3,407 $ —   $ 50,612
Cost of revenue (excluding depreciation and amortization)
   26,253    696    2,911 —   29,860
Depreciation and amortization
   6,716    —      631 958 8,305
Selling, general and administrative
   5,235    67    499 6,399 12,200






Operating income (loss)
   $ 7,449    $ 789    $ (634 ) $ (7,357 ) $ 247






Capital expenditures
   1,936    —      —   —   1,936
   Nine Months Ended September 30, 2017
   Managed
Services    Applications
and
Internet-of-
Things    Systems
Integration Corporate and
Eliminations Consolidated
Total
   (in thousands)
Revenue
   $ 122,531    $ 9,846    $ 15,701 $ —   $ 148,078
Cost of revenue (excluding depreciation and amortization)
   75,798    6,844    12,656 —   95,298
Depreciation and amortization
   17,509    849    1,813 2,696 22,867
Selling, general and administrative
   12,435    1,149    1,179 22,606 37,369






Operating income (loss)
   $ 16,789    $ 1,004    $ 53 $ (25,302 ) $ (7,456 )






Total assets
   184,678    33,353    15,857 3,960 237,848
Capital expenditures
   13,081    198    —   645 13,924
   Nine Months Ended September 30, 2016
   Managed
Services    Applications
and
Internet-of-
Things    Systems
Integration Corporate and
Eliminations Consolidated
Total
   (in thousands)
Revenue
   $ 146,766    $ 5,079    $ 16,019 $ —   $ 167,864
Cost of revenue (excluding depreciation and amortization)
   85,455    2,176    11,781 —   99,412
Depreciation and amortization
   20,032    —      2,127 3,402 25,561
Impairment of goodwill and intangible assets
   —      —      —   397 397
Selling, general and administrative
   20,631    201    2,141 21,979 44,952






Operating income (loss)
   $ 20,648    $ 2,702    $ (30 ) $ (25,778 ) $ (2,458 )






Total assets
   213,739    —      26,139 4,800 244,678
Capital expenditures
   10,365    —      —   1,146 11,511

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


	Three Months Ended June 30, 2018
	Managed Services		Applications and Internet-of- Things		Systems Integration			Corporate and Eliminations			Consolidated Total
	(in thousands)
Revenue	$	41,712	$	6,576	$	11,719		$	—		$	60,007
Cost of revenue (excluding depreciation and amortization)		25,307		3,165		7,774			—			36,246
Depreciation and amortization		5,645		836		665			1,210			8,356
Selling, general and administrative		5,023		430		557			13,725			19,735

Operating income (loss)	$	5,737	$	2,145	$	2,723		$	(14,935	)	$	(4,330	)

Capital expenditures		6,462		134		—			—			6,596

	Three Months Ended June 30, 2017
	Managed Services		Applications and Internet-of- Things		Systems Integration			Corporate and Eliminations			Consolidated Total
	(in thousands)
Revenue	$	40,625	$	2,430	$	6,107		$	—		$	49,162
Cost of revenue (excluding depreciation and amortization)		25,549		1,995		5,494			—			33,038
Depreciation and amortization		6,222		7		611			712			7,552
Selling, general and administrative		4,983		298		422			6,307			12,010

Operating income (loss)	$	3,871	$	130	$	(420	)	$	(7,019	)	$	(3,438	)

Capital expenditures		4,266		—		—			645			4,911

	Six Months Ended June 30, 2018
	Managed Services		Applications and Internet-of- Things		Systems Integration			Corporate and Eliminations			Consolidated Total
	(in thousands)
Revenue	$	83,762	$	11,912	$	18,166		$	—		$	113,840
Cost of revenue (excluding depreciation and amortization)		51,052		6,250		12,625			—			69,927
Depreciation and amortization		11,371		1,683		1,317			1,972			16,343
Selling, general and administrative		9,238		784		880			25,468			36,370

Operating income (loss)	$	12,101	$	3,195	$	3,344		$	(27,440	)	$	(8,800	)

Total assets		146,592		48,922		25,880			31,459			252,853
Capital expenditures		12,296		268		—			645			13,209

	Six Months Ended June 30, 2017
	Managed Services		Applications and Internet-of- Things		Systems Integration			Corporate and Eliminations			Consolidated Total
	(in thousands)
Revenue	$	82,288	$	4,861	$	10,085		$	—		$	97,234
Cost of revenue (excluding depreciation and amortization)		50,896		3,450		8,567			—			62,913
Depreciation and amortization		12,245		14		1,198			1,411			14,868
Selling, general and administrative		9,422		786		892			12,858			23,958

Operating income (loss)	$	9,725	$	611	$	(572	)	$	(14,269	)	$	(4,505	)

Total assets		182,160		12,669		16,869			11,007			222,705
Capital expenditures		7,426		—		—			645			8,071

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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, ~~2017~~2018 and ~~2016.~~2017. 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,
	2017		2016		2017		2016		2018		2017		2018		2017
	(in thousands)								(in thousands)
Domestic	$	17,136	$	11,555	$	46,110	$	43,783	$	16,006	$	14,022	$	33,634	$	28,974
International		33,708		39,057		101,968		124,081		44,001		35,140		80,206		68,260

Total	$	50,844	$	50,612	$	148,078	$	167,864	$	60,007	$	49,162	$	113,840	$	97,234

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, ~~2017~~2018 and December 31, ~~2016.~~2017.


	September 30,		December 31,		June 30,		December 31,
	2017		2016		2018		2017
	(in thousands)				(in thousands)
Domestic	$	70,309	$	27,682	$	71,671	$	68,942
International		62,049		70,101		76,838		58,895

Total	$	132,358	$	97,783	$	148,509	$	127,837

Note 13 – ~~Restructuring Costs – Cost Reduction Plans~~Related Party

~~During~~The Company has entered into a reseller arrangement with Darktrace, which is an artificial intelligence company in cybersecurity that is partially owned by Kohlberg Kravis Roberts & Co. L.P. (KKR). KKR is a significant stockholder of the ~~three and nine months ended September 30, 2017,~~Company. Under the arrangement, the Company ~~incurred a netpre-tax~~ ~~restructuring expense of $0.8 million reported as general and administrative expense~~will sell Darktrace’s cybersecurity audit services with the Company’s cybersecurity offerings. The Company has not yet purchased services from Darktrace, but expects to do so in the ~~Corporate segment associated with the reduction of 31 employees.~~future.

~~During the three months ended September 30, 2016, the Company incurred a netpre-tax~~ restructuring expense of $0.8 million reported as general and administrative expense in the Corporate segment 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, the Company incurred netpre-tax~~ restructuring expense of $1.3 million 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 undertook restructuring plans to reduce costs and improve the Company’s competitive position.

~~Note 14 – Executive Departure costs~~

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 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, ~~2017~~2018 and for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017 included elsewhere herein, and with our annual report on Form10-K for the year ended December 31, ~~2016.~~2017. 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.

Forward-Looking Statements

This Quarterly Report on Form10-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~~Forward-Looking statements may include statements about:

new regulations, delays in drilling permits or other changes in the ~~drilling~~oil and gas industry;

competition and competitive factors in the markets in which we operate;

demand for our services and solutions;

the advantages of our services compared to others;

changes in technology and customer preferences and our ability to adapt our product and services offerings;

our ability to develop and maintain positive relationships with our customers;

our ability to retain and hire necessary employees and appropriately staff our marketing, sales and distribution efforts;

our cash needs and expectations regarding cash flow from operations and capital expenditures;

our expectations regarding the deductibility of goodwill for tax purposes;

our strategy and acquisitions;

our ability to develop and market additional products and services;

our ability to manage and grow our business and execute our business strategy, including developing and marketing additional Applications andInternet-of-Things solutions, expanding our market share, increasing secondary and tertiary customer penetration ~~of the U.S.~~at remote sites, enhancing systems integration and ~~international onshore and offshore drilling rigs and expanding~~extending our ~~business~~presence into complementary remote communication ~~market adjacencies;~~segments through organic growth and strategic acquisitions;

~~our strategy and acquisitions;~~

our ability to pursue, consummate and integrate merger and acquisition opportunities successfully;

the GX ~~dispute~~dispute;

the amount and timing of contingent consideration payments arising from our ~~resource reallocation~~acquisitions;

our cost reduction, restructuring activities and related expenses; and

our financial performance, including our ability to expand Adjusted EBITDA through our operational leverage.

In some cases, forward-looking statements can be identified by terminology such as “may,” “could,” “should,” “would,” “expect,” “plan,” “project,” “intend,” “will,” “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 Form10-Q, are forward-looking statements.

The forward-looking statements contained in this Quarterly Report on Form10-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 Form10-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 Form10-K for the year

ended December 31, ~~2016~~2017 and elsewhere in this Quarterly Report on Form10-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.

Our Operations

We are a global technology company that provides customized communications services, applications, real-time machine learning, and cybersecurity solutions ~~enhancing~~to enhance customer ~~decision making~~decision-making and business performance. We ~~provide solutions ranging from fully-managed voice~~deliver a digital transformation bundle that accelerates technology adoption and ~~data networks~~empowers customers to ~~more advanced applications that include video conferencing, asset~~be always connected, always secure, and ~~weather monitoring, real-time data services and cybersecurity under a multi-service recurring revenue model.~~always learning.

Customers use our private networks to manage information flows and execute mission-critical operations primarily in remote areas where conventional telecommunications infrastructure is either unreliable or unavailable. We provide our clients what is often the sole means of communications for their remote operations.

~~Network service~~Managed Service and Applications andInternet-of-Things 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~~up 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~~permit early termination 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). Systems Integration customers are served primarily under fixed-price, long-term contracts.

We previously operated our business under two reportable segments: Managed Services and Systems Integration (previously called SI&A). During the third quarter of 2017, after we completed the ESS acquisition, we reorganized our business and reportable segments. Applications andInternet-of-Things is now managed and presented as a separate segment, and was previously presented in the Managed Services segment. The reporting on this new segment will help track our progress related to this important area of focus within the business that is intended to enhance the value of the services we deliver to customers, including enhancing the value of the managed communications services we deliver to customers around the world. All historical segment financial data included herein has been recast to conform to the current year presentation. We now operate three reportable segments, which are managed as distinct segments by our chief operating decision-maker.

•

Managed Services.Our Managed Services segment provides remote communications, telephony and technology services for offshore and onshore drilling rigs and production facilities, support vessels, and other remote sites.

•

Applications andInternet-of-Things (Apps & IoT).Our Apps & IoT segment provides applicationsover-the-top of the Managed Services including Supervisory Control and Data Acquisition (SCADA) and Software as a Service (SaaS) offerings including BlackTIE^® encryption, weather monitoring primarily in the North Sea (METOCEAN), real-time predictive analytics (Intelie Pipes and Intelie LIVE) and certain other ~~value added~~value-added services such as Adaptive Video Intelligence (AVI).

•

Systems Integration.Our Systems Integration segment provides design and implementation services for customer telecommunications systems. Solutions are delivered based on the customer’s specifications, adhering to international industry standards and best practices. Project services may include consulting, design, engineering, project management, procurement, testing, installation, commissioning and maintenance.

Cost of revenue consists primarily of satellite charges, voice and data termination costs, network operations expenses, internet connectivity fees, equipment purchases for Systems Integration 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) 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.

Recent Developments

~~On November 6, 2017,~~In July 2018, we ~~entered into our third amended and restated credit agreement, which provides~~paid $8.0 million for the TECNORearn-out. We made a ~~$15.0~~$10.0 million ~~term loan facility and an $85.0 million~~draw on the revolving credit facility ~~that matures on November 6, 2020 with interest payable monthly at a rate~~(RCF) primarily to pay the TECNORearn-out. The change in fair value of ~~LIBOR plus a margin ranging from 1.75%~~theearn-out was due to ~~2.75% based on a consolidated leverage ratio and principal payments of $1.25 million due quarterly beginning March 31, 2018.~~

~~During the third~~2^nd quarter ~~of 2017, we incurred restructuring expense of $0.8 million associated~~2018 negotiations with the ~~reduction~~sellers of ~~31 employees.~~TECNOR on the amount of theearn-out. Additionally, we have agreed to pay the sellers of TECNOR up to $1.0 million in either cash or RigNet stock payable in 2019 for the collection of certain accounts receivable balances.

On 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 IoT market position. We paid $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 paid $5.1 million in cash for the DTS assets. DTS is based in Louisiana.

In July 2017, we delivered a notice of termination of an agreement with Inmarsat to acquire capacity from Inmarsat’s GX network. We will continue to offer other solutions to our customers as we have in the past. We will continue to evaluate and make available the best service options for our customers’ telecommunication needs.

~~On May~~April 18, ~~2017,~~2018, we completed ~~our acquisition~~the separate acquisitions of ~~Cyphre Security Solutions (Cyphre)~~Automation Communications Engineering Corp. (Auto-Comm) and Safety Controls, Inc. (SAFCON) for an ~~estimated~~ aggregate purchase price of ~~$12.0~~$6.3 million. Of this aggregate purchase price, we paid ~~$4.9~~$2.2 million in cash ~~$3.3~~and $4.1 million in stock. Auto-Comm provides a broad range of communications services, for both onshore and offshore remote locations, to the oil and gas industry. Auto-Comm brings over 30 years of systems integration experience in engineering and design, installation, testing, and maintenance. SAFCON offers a diverse set of safety, security, and maintenance services to the oil and gas industry. Auto-Comm and SAFCON have developed strong relationships with major energy companies that complement the relationships that we have established over the years. Auto-Comm and SAFCON are based in Louisiana.

On March 23, 2018, we completed the acquisition of Intelie Soluções Em Informática S.A (Intelie), for an estimated aggregate purchase price of $18.1 million. Of this aggregate purchase price, we paid R$10.6 million (BRL) (or approximately $3.2 million) in cash, $7.3 million in stock and expect to pay ~~$3.8~~$7.6 million worth of RigNet stock as contingent consideration ~~for intellectual property,~~earn-out, estimated as of the date of acquisition. The initial estimate of the ~~contingent consideration for intellectual property is~~earn-out payable was preliminary and remains subject to change based on the achievement of certain post-closing ~~contractual options~~performance targets under the acquisition agreement. ~~Cyphre~~The maximumearn-out is $17.0 million. Intelie is a ~~cybersecurity~~real-time, predictive analytics company that ~~provides advanced enterprise~~combines an operational understanding with a machine learning approach. Intelie facilitates innovation via Intelie Pipes, a distributed query language with a complex event processor to aggregate and normalize real-time data ~~protection leveraging BlackTIE~~^® ~~hardware-based encryption featuring low latency protection for files at rest~~from a myriad of data sources. This technology enables the Intelie LIVE platform to solve data integration, data quality, data governance and monitoring problems. Intelie LIVE is an operational intelligence platform that empowers clients to make timely, data-driven decisions in ~~transit for both public~~mission-critical real-time operations, including drilling, and ~~private cloud. Cyphre~~longer-term, data-intensive projects, such as well planning. Intelie is based in ~~Texas.~~Brazil.

~~In January 2017,~~As of June 30, 2018, we ~~signed and announced an eight-year lease~~have backlog for ~~new headquarters space, comprised~~our percentage of ~~28,808 square feet located at 15115 Park Row Blvd, Suite 300, Houston, Texas. The term~~completion projects of ~~this lease runs through June 2025.~~$19.6 million.

Known Trends and Uncertainties

Operating Matters

Uncertainties in the oil and gas industry may continue to impact our profitability. The fundamentals of the oil and gas industry we serve remain challenged into ~~2017,~~2018, particularly offshore. Oil prices declined significantly throughout 2015 and into 2016 from the highs inmid-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 in 2017 and 2018 since their 2016 lows, the oil and gas environment continues to be challenged with operators focusing on projects with shorter ~~term, land-based projects~~pay-back periods that generally require less capital ~~investment.~~investment and lower day rates from service providers and drilling contractors. The offshore drilling contracting environment remains challenged, with major offshore drilling contractors experiencing pressure on day rates and expecting gradual demand recovery. 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 reduced their capital spending budgets, including the cancellation or deferral of existing programs, and are expected to continue operating under reduced budgets in the current commodity price environment.

For the periods referenced below, we were billing on the following managed service sites listed in the table below:


	3rd Quarter		2nd Quarter		1st Quarter		4th Quarter		3rd Quarter		2nd Quarter		1st Quarter		4th Quarter		3rd Quarter		2nd Quarter
	2017		2017		2017		2016		2016		2018		2018		2017		2017		2017
Selected Operational Data:
Offshore drilling rigs (1)		184		173		173		175		194		190		188		182		184		173
Offshore Production		316		296		290		280		287		320		310		304		316		296
Maritime		165		134		124		122		128		177		176		172		165		134
International Land		132		112		104		104		101
Other sites (2)		378		336		304		240		238		610		525		513		510		448

Total		1,175		1,051		995		921		948		1,297		1,199		1,171		1,175		1,051

(1)	Includes jack up, semi-submersible and drillship rigs

(2)	Includes U.S. ~~onshore drilling~~ and ~~production~~International land sites, completion sites,man-camps, remote offices, and supply bases and offshore-related supply bases, shore offices, tender rigs and platform rigs

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.

Sales Tax Audit

We ~~are undergoing~~have received a routine sales tax audit innotice from a state where we have ~~operations~~operations. Per the notice, the audit can cover up to a four-year period. We are in the early stages of the process, and do not have any estimates of further exposure, if any, 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 three months. We do not believe that the outcome of the audit will result in a material impact to the consolidated financial statements.tax years under review.

Global Xpress (GX) Dispute

We and Inmarsat are in a dispute ~~with Inmarsat~~ relating to a January 2014 ~~take or pay~~ agreement toregarding the purchase of up to $65.0 million, under certain conditions, of GX capacity from Inmarsat over several years. ~~We are attempting to resolve~~Inmarsat initiated arbitration regarding 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 ~~our~~its contractual rights under the agreement, we delivered a notice of termination of the agreement to Inmarsat. In addition, we have filed certain counterclaims against Inmarsat. The parties have agreed to divide the arbitration into two phases, with the first phase to decide if our purchase obligation ever commenced and the second phase to address our counterclaims against Inmarsat. The parties attended an arbitration hearing on the first phase in June 2018 and are currently awaiting the decision of the arbitration panel.

We have incurred legal expenses of ~~$0.8~~$1.4 million in connection with the GX dispute for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. 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.

Results of Operations

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,
	2017			2016			2017			2016			2018			2017			2018			2017
	(in thousands)												(in thousands)
Revenue	$	50,844		$	50,612		$	148,078		$	167,864		$	60,007		$	49,162		$	113,840		$	97,234

Expenses:
Cost of revenue (excluding depreciation and amortization)		32,385			29,860			95,298			99,412			36,246			33,038			69,927			62,913
Depreciation and amortization		7,999			8,305			22,867			25,561			8,356			7,552			16,343			14,868
Impairment of intangible assets		—			—			—			397
Selling and marketing		2,400			1,724			5,968			5,559			4,189			2,132			7,138			3,568
General and administrative		11,011			10,476			31,401			39,393			15,546			9,878			29,232			20,390

Total expenses		53,795			50,365			155,534			170,322			64,337			52,600			122,640			101,739

Operating income (loss)		(2,951	)		247			(7,456	)		(2,458	)
Operating loss														(4,330	)		(3,438	)		(8,800	)		(4,505	)
Other expense, net		(480	)		(1,155	)		(1,859	)		(2,437	)		(895	)		(873	)		(1,348	)		(1,379	)

Loss before income taxes		(3,431	)		(908	)		(9,315	)		(4,895	)		(5,225	)		(4,311	)		(10,148	)		(5,884	)
Income tax expense		(762	)		(540	)		(1,075	)		(2,676	)
Income tax benefit (expense)														926			101			323			(313	)

Net loss		(4,193	)		(1,448	)		(10,390	)		(7,571	)		(4,299	)		(4,210	)		(9,825	)		(6,197	)
Less: Net income attributable tonon-controlling interest		39			210			117			171			30			39			60			78

Net loss attributable to RigNet, Inc. stockholders	$	(4,232	)	$	(1,658	)	$	(10,507	)	$	(7,742	)	$	(4,329	)	$	(4,249	)	$	(9,885	)	$	(6,275	)

OtherNon-GAAP Data:
Unlevered Free Cash Flow	$	1,990		$	6,598		$	7,197		$	16,313
Adjusted EBITDA	$	7,843		$	8,534		$	21,121		$	27,824		$	8,098		$	6,053		$	15,517		$	13,278

The following represents selected financial operating results for our segments:


		Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended June 30,					Six Months Ended June 30,
		2017		2016			2017		2016			2018		2017			2018		2017
		(in thousands)										(in thousands)
Managed Services:
Revenue		$	40,243	$	45,653		$	122,531	$	146,766		$	41,712	$	40,625		$	83,762	$	82,288
Cost of revenue (excluding depreciation and amortization)			24,902		26,253			75,798		85,455			25,307		25,549			51,052		50,896
Depreciation and amortization			5,263		6,716			17,509		20,032			5,645		6,222			11,371		12,245
Selling, general and administrative			3,013		5,235			12,435		20,631			5,023		4,983			9,238		9,422

Managed Services operating income		$	7,065	$	7,449		$	16,789	$	20,648		$	5,737	$	3,871		$	12,101	$	9,725

Applications andInternet-of-Things:	Applications andInternet-of-Things:
Revenue		$	4,985	$	1,552		$	9,846	$	5,079		$	6,576	$	2,430		$	11,912	$	4,861
Cost of revenue (excluding depreciation and amortization)			3,394		696			6,844		2,176			3,165		1,995			6,250		3,450
Depreciation and amortization			835		—			849		—			836		7			1,683		14
Selling, general and administrative			363		67			1,149		201			430		298			784		786

Applications &Internet-of-Things operating income		$	393	$	789		$	1,004	$	2,702		$	2,145	$	130		$	3,195	$	611

Systems Integration:
Revenue		$	5,616	$	3,407		$	15,701	$	16,019		$	11,719	$	6,107		$	18,166	$	10,085
Cost of revenue (excluding depreciation and amortization)			4,089		2,911			12,656		11,781			7,774		5,494			12,625		8,567
Depreciation and amortization			615		631			1,813		2,127			665		611			1,317		1,198
Selling, general and administrative			280		499			1,179		2,141			557		422			880		892

Systems Integration and Automation operating income (loss)		$	632	$	(634	)	$	53	$	(30	)	$	2,723	$	(420	)	$	3,344	$	(572	)

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

Three Months Ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017

Revenue.Revenue increased by ~~$0.2~~$10.8 million, or ~~0.5%~~22.1%, to ~~$50.8~~$60.0 million for the three months ended ~~September~~June 30, ~~2017~~2018 from ~~$50.6~~$49.2 million for the three months ended ~~September~~June 30, ~~2016. This increase was driven by~~2017. Revenue increased ~~revenues~~ in ~~the Apps & IoT and~~all segments. The Systems Integration ~~segments, partially offset by lower revenue in~~segment increased $5.6 million, or 91.9%, primarily due to the ~~Managed Services segment.~~acquisition of Auto-Comm and SAFCON and increased activity of Systems Integration projects. The Apps & IoT segment increased ~~$3.4~~$4.1 million, or ~~221.2%~~170.6%, due to our growth strategy which focuses on growth into the application layer and IoT space including the acquisition of ~~ESS, which contributed $1.3 million. The Systems Integration segment increased $2.2 million, or 64.8%, due to the timing of Systems Integration projects.~~Intelie and ESS. The Managed Services segment ~~decreased $5.4~~increased $1.1 million, or ~~11.9%~~2.7%, ~~primarily~~ due to ~~decreased offshore drilling sites served and decreasedrevenue-per-site~~ ~~from offshore drilling rigs partially offset by $1.1 million from~~increased site count coupled with the acquisition of DTS. ~~The decrease of 10 offshore drilling sites served was primarily due to offshore drilling rigs we previously served being cold-stacked or scrapped partially offset by new sales wins. The decreasedrevenue-per-site~~ ~~from offshore drilling rigs is primarily due to decreased multi-tenancy ratios from operators on offshore drilling rigs. As rigs that we servehot-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. Revenue continues to be impacted by previously announced reductions in offshore drilling.

Cost of Revenue (excluding depreciation and amortization).Cost of revenue (excluding depreciation and amortization) increased by ~~$2.5~~$3.2 million, or ~~8.5%~~9.7%, to ~~$32.4~~$36.2 million for the three months ended ~~September~~June 30, ~~2017~~2018 from ~~$29.9~~$33.0 million for the three months ended ~~September~~June 30, ~~2016.~~2017. Cost of revenue (excluding depreciation and amortization) increased in the Systems Integration segment by $2.3 million due to the acquisition of Auto-Comm and SAFCON and increased activity of Systems Integration projects. Cost of revenue (excluding depreciation and amortization) increased in the Apps & IoT segment by ~~$2.7~~$1.2 million as we ~~invest~~invested in our strategy of expanding into the application layer and IoT space including the acquisition of Intelie, ESS and Cyphre. ~~Cost of revenue increased in the Systems Integration segment by $1.2 million due to the timing of Systems Integration projects.~~ Cost of revenue (excluding depreciation and amortization) decreased in the Managed Services segment by ~~$1.4 million primarily due to reductions in ongoing expenses partially offset by the acquisition of DTS.~~$0.2 million.

Depreciation and Amortization.Depreciation and amortization expense ~~decreased~~increased by ~~$0.3~~$0.8 million to ~~$8.0~~$8.4 million for the three months ended ~~September~~June 30, ~~2017~~2018 from ~~$8.3~~$7.6 million for the three months ended ~~September~~June 30, ~~2016.~~2017. The ~~decrease~~increase is primarily attributable to ~~lower levels of~~additions to property, plant and equipment and intangibles from acquisitions and capital ~~expenditures in recent years, partially offset by the recent acquisitions of Cyphre, DTS and ESS.~~expenditures.

Selling and Marketing.Selling and marketing expense increased ~~$0.7~~$2.1 million to ~~$2.4~~$4.2 million for the three months ended ~~September~~June 30, ~~2017~~2018 from ~~$1.7~~$2.1 million for the three months ended ~~September~~June 30, ~~2016.~~2017. This increase was due to investing in our growth ~~strategy.~~strategy including increased sales and marketing personnel costs.

General and Administrative.General and administrative expenses increased by ~~$0.5~~$5.7 million to ~~$11.0~~$15.5 million for the three months ended ~~September~~June 30, ~~2017~~2018 from ~~$10.5~~$9.9 million for the three months ended ~~September~~June 30, ~~2016.~~2017. General and administrative costs increased primarily due to ~~the~~increased stock-based compensation, legal expenses, acquisitions and acquisition ~~of Cyphre and ESS and~~ related acquisition costs in the Apps & IoT segment. General and administrative costs decreased in the Managed Services and Systems Integration segments due to reductions in ongoing expenses partially offset by the acquisition of DTS.costs.

Income Tax Expense.Our effective income tax rate was ~~(22.2%)~~17.7% and ~~(59.5%)~~2.3% for the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, 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, ~~2017~~2018 and ~~2016~~2017

Revenue.Revenue ~~decreased~~increased by ~~$19.8~~$16.6 million, or ~~11.8%~~17.1%, to ~~$148.1~~$113.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 from ~~$167.9~~$97.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016. This decrease was driven by lower revenues across the Managed Services and~~2017. Revenue increased in all segments. The Systems Integration ~~segments, partially offset by an increase in the Apps & IoT segment. The Managed Services~~ segment ~~decreased $24.2~~increased $8.1 million, or ~~16.5%~~80.1%, primarily due to ~~decreased offshore drilling sites served and decreasedrevenue-per-site~~ ~~from offshore drilling rigs partially offset by $1.1 million from~~ the acquisition of ~~DTS. The decrease of 10 offshore drilling sites served was primarily due to offshore drilling rigs we previously served being cold-stacked or scrapped partially offset by new sales wins. The decreasedrevenue-per-site~~ ~~from offshore drilling rigs is primarily due to decreased multi-tenancy ratios from operators on offshore drilling rigs. As rigs that we servehot-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~~Auto-Comm and earn additional revenue is lost until the drilling rig is subsequently contracted for service. Revenue continues to be impacted by previously announced reductions in offshore drilling. The Systems Integration segment decreased $0.3 million, or 2.0%, due to the timingSAFCON and increased activity of Systems Integration projects. The Apps & IoT segment increased ~~$4.8~~$7.1 million, or ~~93.9%~~145.1%, due to our growth strategy which focuses on growth into the application layer and IoT space including the acquisition of ~~ESS, which contributed $1.3 million.~~Intelie and ESS. The Managed Services segment increased $1.5 million, or 1.8%, due to increased site count coupled with the acquisition of DTS.

Cost of Revenue (excluding depreciation and amortization).Cost of revenue (excluding depreciation and amortization) ~~decreased~~increased by ~~$4.1~~$7.0 million, or ~~4.1%~~11.1%, to ~~$95.3~~$69.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 from ~~$99.4~~$62.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017. Cost of revenue (excluding depreciation and amortization) ~~decreased in the Managed Services segment by $9.7 million primarily due to reductions in ongoing expenses partially offset by the acquisition of DTS. Cost of revenue~~ increased in the Systems Integration segment by ~~$0.9~~$4.1 million due to the ~~timing~~acquisition of Auto-Comm and SAFCON and increased activity of Systems Integration projects. Cost of revenue (excluding depreciation and amortization) increased in the Apps & IoT segment by ~~$4.7~~$2.8 million as we ~~invest~~invested in our strategy of expanding into the application layer and~~internet-of-things~~ IoT space including the acquisition of Intelie, ESS and Cyphre. Cost of revenue (excluding depreciation and amortization) increased in the Managed Services segment by $0.2 million.

Depreciation and Amortization.Depreciation and amortization expense ~~decreased~~increased by ~~$2.7~~$1.5 million to ~~$22.9~~$16.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 from ~~$25.6~~$14.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017. The ~~decrease~~increase is primarily attributable to ~~lower levels of~~additions to property, plant and equipment and intangibles from acquisitions and capital ~~expenditures in recent years.~~

expenditures.~~Impairment of Intangible Assets.~~We recognized $0.4 million in impairment for the nine months ended September 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.

Selling and Marketing.Selling and marketing expense increased ~~$0.4~~$3.6 million to ~~$6.0~~$7.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 from ~~$5.6~~$3.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017. This increase was due to investing in our growth ~~strategy.~~strategy including increased sales and marketing personnel costs.

General and Administrative.General and administrative expenses ~~decreased~~increased by ~~$8.0~~$8.8 million to ~~$31.4~~$29.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 from ~~$39.4~~$20.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016. General and administrative costs decreased in the Managed Services and Systems Integration segments due to reductions in ongoing expenses partially offset by the acquisition of DTS.~~2017. General and administrative costs increased ~~in the Apps & IoT segment~~primarily due to ~~the~~increased stock-based compensation, legal expenses, acquisitions and acquisition ~~of Cyphre and ESS and~~ related ~~acquisition~~ costs.

Income Tax Expense.Our effective income tax rate was ~~(11.5%)~~3.2% and ~~(54.7%~~(5.3%) for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, 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.

Liquidity and Capital Resources

At ~~September~~June 30, ~~2017,~~2018, we had working capital, including cash and cash equivalents, of ~~$44.8~~$40.4 million.

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~~which may include debt or ~~equity.~~equity offerings.

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,						Six Months Ended June 30,
	2017			2016			2018			2017
	(in thousands)						(in thousands)
Condensed Consolidated Statements of Cash Flows Data:
Cash and cash equivalents, January 1,	$	57,152		$	60,468
Cash and cash equivalents including restricted cash, January 1,							$	36,141		$	58,805
Net cash provided by operating activities		20,888			22,754			1,329			9,283
Net cash used in investing activities		(45,007	)		(16,886	)		(17,613	)		(11,175	)
Net cash used in financing activities		(1,052	)		(8,111	)		(1,211	)		(13,845	)
Changes in foreign currency translation		919			(986	)		1,308			1,172

Cash and cash equivalents, September 30,	$	32,900		$	57,239
Cash and cash equivalents including restricted cash, June 30,							$	19,954		$	44,240

Currently, the Norwegian ~~kroner~~Krone, the British Pound Sterling and the ~~British pound sterling~~Brazilian Real 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, 2018 and 2017, 91.5% and ~~2016, 90.2% and 84.6%~~89.5% of our revenue was denominated in U.S. dollars, respectively.

Operating Activities

Net cash ~~provided by~~from operating activities was ~~$20.9~~$1.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to ~~$22.8~~cash from operating activities of $9.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017. The decrease in cash ~~provided by~~from operating activities during ~~2017~~2018 of ~~$1.9~~$8.0 million was primarily due to ~~decreased~~increased operating ~~activity.~~loss coupled with the timing of collecting receivables.

Our cash provided by operations is subject to many variables ~~the most significant of which is~~including 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 our contracted satellite and other communication service costs.

Investing Activities

Net cash used in investing activities was ~~$45.0~~$17.6 million and ~~$16.9~~$11.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively.

Net Cash used in investing activities during the nine months ended September 30, 2017 included $32.2 million paid in connection with acquisitions consisting of $4.9 million for Cyphre, $5.1 million for DTS and $22.2 million for ESS. Net Cash used in investing activities during the nine months ended September 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, 2018 and 2017 included $5.1 million and ~~2016~~$4.9 million for acquisitions, respectively. Net cash used in investing activities during the six months ended June 30, 2018 and 2017 includes capital expenditures of ~~$13.2~~$12.7 million and ~~$11.2~~$6.5 million, respectively. We expect capital expenditures ~~for 2017~~ to ~~continue to be low due to continued reduced levels~~increase in the second half of ~~global offshore oil~~the year as we build out our LTE network in the Gulf of Mexico and ~~gas drilling activity.~~consolidate multiple Louisiana facilities into one facility.

Financing Activities

Net cash used in financing activities was ~~$1.1~~$1.2 million and ~~$8.1~~$13.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively. Cash used in financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 included ~~$16.7~~$2.6 million in principal payments on our long-term debt, ~~partially offset by draws of $15.0~~$2.5 million in proceeds from borrowings and $1.1 million withheld to cover employee taxes on ~~our revolving credit facility.~~stock based compensation. Cash used in financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 included ~~$9.4~~$14.5 million in principal payments on our long-term debt.

Credit Agreement

~~As of September 30, 2017, the Company has~~We have a ~~$60.0~~$15.0 million term loan facility (Term Loan) and ~~a $75.0~~an $85.0 million ~~Revolving Credit Facility~~revolving credit facility (RCF), which includes a ~~$15~~$25.0 million sublimit for the issuance of commercial and standby letters of ~~credit.~~credit and performance bonds.

~~The~~Both the Term Loan ~~bears~~and RCF bear an interest rate of LIBOR plus a margin ranging from ~~1.5%~~1.75% to ~~2.5%~~2.75%, based on a consolidated leverage ratio ~~of funded debt to Consolidated EBITDA, anon-GAAP~~ ~~financial measure~~ defined in the credit agreement. Interest is payable monthly ~~along with quarterly~~and principal installments of ~~$2.1~~$1.25 million under the Term Loan are due quarterly, with the balance due ~~October 2018.~~ November 6, 2020.

The weighted average interest rate for the three months ended ~~September~~June 30, 2018 and 2017 were 4.8% and ~~2016 was 3.2% and 2.5%~~3.1%, respectively. The weighted average interest rate for the ~~nine~~six months ended ~~September~~June 30, 2018 and 2017 were 4.5% and ~~2016 was~~ 3.1% ~~and 2.4%~~, respectively, with an interest rate of ~~3.2%~~4.8% at ~~September~~June 30, ~~2017. The Term Loan is secured by substantially all the assets of the Company.~~2018. As of ~~September~~June 30, ~~2017,~~2018, the outstanding principal ~~balance~~amount of the Term Loan was ~~$27.9 million.~~

~~The RCF matures in October 2018 with any outstanding borrowings then payable. Borrowings under~~$12.5 million, excluding the ~~RCF carry an interest rate~~impact of ~~LIBOR plus an applicable margin ranging from 1.5% to 2.5%, which varies as a function of the Company’s leverage ratio.~~unamortized deferred financing costs. As of ~~September~~June 30, ~~2017, $32.0~~2018, $45.9 million in draws on the ~~facility~~RCF remain outstanding. The weighted average interest rate for the three months ended September 30, 2017 and 2016 was 3.2% and 2.5%, respectively. The weighted average interest rate for the nine months ended September 30, 2017 and 2016 was 3.1% and 2.4%, respectively, with an interest rate of 3.2% at September 30, 2017.

~~As of September 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~~The credit agreement ~~with the most significant changes being the definition of Consolidated EBITDA, the calculation of the fixed charge coverage ratio~~contains certain covenants 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 RCF 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~~restricting the payment of cash ~~dividends. It also requires us to maintain~~dividends when under default and maintaining certain financial covenants such as a ~~funded debt to Consolidated EBITDA~~consolidated leverage ratio, defined in the credit agreement, of less than or equal to ~~2.5~~2.75 to 1.0 and a consolidated fixed charge coverage ratio of not less than 1.25 to 1.0. ~~At September~~If any default occurs related to these covenants, the unpaid principal and any accrued interest shall be declared immediately due and payable. The facilities under the credit agreement are secured by substantially all our assets. As of June 30, ~~2017,~~2018, we believe we were in compliance with all covenants.

On November 6, 2017, we entered into our third amended and restated credit agreement, which provides for a $15.0 million term loan facility and an $85.0 million revolving credit facility that matures on November 6, 2020 with interest payable monthly at a rate of LIBOR plus a margin ranging from 1.75% to 2.75% based on a consolidated leverage ratio and principal payments of $1.25 million due quarterly beginning March 31, 2018.

Off-Balance Sheet Arrangements

We do not engage in anyoff-balance sheet arrangements.

Non-GAAP ~~Measures~~Measure

Adjusted EBITDA ~~and Unlevered Free Cash Flow~~ should not be considered as ~~alternatives~~an alternative to net loss, operating income (loss), basic or diluted earnings per share or any other measure of financial performance calculated and 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 Adjusted EBITDA ~~Unlevered Free Cash Flow~~ or similarly titled measures in the same manner as we do. We prepare 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. Net loss is the most comparable GAAP measure to Adjusted EBITDA.

We define Adjusted EBITDA as net loss plus interest expense (benefit), 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~~sales of property, plant and equipment, net of retirements, change in fair value of earn-outs and contingent consideration, stock-based compensation, ~~merger and~~ acquisition costs, executive departure costs, restructuring charges andnon-recurring items.

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

Investors and securities analysts use Adjusted EBITDA as a supplemental measure to evaluate the overall operating performance of companies, and we understand our investor and analyst’s presentations include Adjusted EBITDA;

By comparing our Adjusted EBITDA in different periods, our investors may evaluate our operating results without the additional variations caused by items that we do not consider indicative of our core operating performance and which are not necessarily comparable from year to year; and

Adjusted EBITDA is an integral component of Consolidated EBITDA, as defined and used in the financial covenant ratios in the credit agreement.

Our management uses Adjusted EBITDA:

To indicate profit contribution;

For planning purposes, including the preparation of our annual operating budget and as a key element of annual incentive programs;

To allocate resources to enhance the financial performance of our business; and

In communications with our Board of Directors concerning our financial performance.

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:

Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or other contractual commitments;

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

Adjusted EBITDA does not reflect interest expense;

Adjusted EBITDA does not reflect cash requirements for income taxes;

Adjusted EBITDA does not reflect impairment of goodwill, intangibles, property, plant and equipment;

Adjusted EBITDA does not reflect foreign exchange impact of intercompany financing activities;

Adjusted EBITDA does not reflect (gain) loss on retirement of property, plant and equipment;

Adjusted EBITDA does not reflect the stock based compensation component of employee compensation;

Adjusted EBITDA does not reflect acquisition costs;

Adjusted EBITDA does not reflect change in fair value of earn-outs and contingent consideration;

Adjusted EBITDA does not reflect executive departure costs;

Adjusted EBITDA does not reflect restructuring charges;

Although depreciation and amortization arenon-cash charges, the assets being depreciated or amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for these replacements; and

Other companies in our industry may calculate Adjusted EBITDA or similarly titled measures differently than we do, limiting its usefulness as a comparative measure.

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:

Investors and securities analysts use Unlevered Free Cash Flow as a supplemental measure to evaluate the overall operating performance of companies, and we understand our investor and analyst’s presentations include Unlevered Free Cash Flow; and

By comparing our Unlevered Free Cash Flow in different periods, our investors may evaluate our operating results without the additional variations caused by items that we do not consider indicative of our core operating performance and which are not necessarily comparable from year to year.

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:

~~Unlevered Free Cash Flow does not reflect changes in, or cash requirements for, our working capital needs;~~

~~Unlevered Free Cash Flow does not reflect interest expense;~~

~~Unlevered Free Cash Flow does not reflect cash requirements for income taxes;~~

~~Unlevered Free Cash Flow does not reflect impairment of goodwill, intangibles, property, plant and equipment;~~

~~Unlevered Free Cash Flow does not reflect foreign exchange impact of intercompany financing activities;~~

~~Unlevered Free Cash Flow does not reflect (gain) loss on retirement of property, plant and equipment;~~

~~Unlevered Free Cash Flow does not reflect acquisition costs;~~

~~Unlevered Free Cash Flow does not reflect change in fair value of earn-outs and contingent consideration;~~

~~Unlevered Free Cash Flow does not reflect executive departure costs;~~

~~Unlevered Free Cash Flow does not reflect restructuring charges;~~

~~Unlevered Free Cash Flow does not reflect depreciation and amortization;~~

~~Unlevered Free Cash Flow does not reflect the stock based compensation component of employee compensation; and~~

~~Other companies in our industry may calculate Unlevered Free Cash Flow or similarly titled measures differently than we do, limiting its usefulness as a comparative measure.~~

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


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
	(in thousands)												(in thousands)
Net loss	$	(4,193	)	$	(1,448	)	$	(10,390	)	$	(7,571	)	$	(4,299	)	$	(4,210	)	$	(9,825	)	$	(6,197	)
Interest expense		689			729			1,921			2,040			1,007			613			1,966			1,232
Depreciation and amortization		7,999			8,305			22,867			25,561			8,356			7,552			16,343			14,868
Impairment of intangible assets		—			—			—			397
(Gain) loss on sales of property, plant and equipment, net of retirements		5			(14	)		55			(164	)		21			13			(32	)		50
Stock-based compensation		1,007			866			2,949			2,708			837			1,116			3,282			1,942
Restructuring		767			835			767			1,332
Change in fair value ofearn-out/contingent consideration		—			(1,279	)		(846	)		(1,279	)		2,778			(846	)		2,800			(846	)
Executive departure costs		—			—			—			1,884			4			—			161			—
Acquisition costs		807			—			2,723			240			320			1,916			1,145			1,916
Income tax expense		762			540			1,075			2,676			(926	)		(101	)		(323	)		313

Adjusted EBITDA(non-GAAP measure)	$	7,843		$	8,534		$	21,121		$	27,824		$	8,098		$	6,053		$	15,517		$	13,278

Adjusted EBITDA(non-GAAP measure)	$	7,843		$	8,534		$	21,121		$	27,824
Capital expenditures		5,853			1,936			13,924			11,511

Unlevered Free Cash Flow(non-GAAP measure)	$	1,990		$	6,598		$	7,197		$	16,313

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

Adjusted EBITDA ~~decreased~~increased by ~~$0.7~~$2.0 million to ~~$7.8~~$8.1 million for the three months ended ~~September~~June 30, ~~2017,~~2018, from ~~$8.5~~$6.1 million for the three months ended ~~September~~June 30, ~~2016. The decrease resulted primarily from increased costs partially offset by increased revenue.~~2017. Adjusted EBITDA ~~decreased~~increased by ~~$6.7~~$2.2 million to ~~$21.1~~$15.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, from ~~$27.8~~$13.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016. The decrease resulted primarily from lower revenue partially offset by a reduction in ongoing operating expenses.~~2017.

Unlevered Free Cash Flow was $2.0 million in the three months ended September 30, 2017, a decrease of $4.6 million over the prior year quarter. Unlevered Free Cash Flow was $7.2 million in the nine months ended September 30, 2017, a decrease of $9.1 million over the prior year period. The decrease in Unlevered Free Cash Flow was due to decreased Adjusted EBITDA and increased capital expenditures.

Item 3.Quantitative and 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, 2018 and 2017, 8.5% and ~~2016, 9.8% and 15.4%~~10.5%, respectively, of our revenues were earned innon-U.S. currencies. At ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, 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, ~~2017~~2018 and December 31, ~~2016,~~2017, assuming those liabilities were outstanding for the previous twelve months:


	September 30,		December 31,		June 30,		December 31,
	2017		2016		2018		2017
	(in thousands)				(in thousands)
Effect on Net Income (Loss) and Equity - Increase/Decrease:
1% Decrease/increase in rate	$	600	$	615	$	581	$	581
2% Decrease/increase in rate	$	1,200	$	1,229	$	1,163	$	1,162
3% Decrease/increase in rate	$	1,800	$	1,844	$	1,744	$	1,743

Item 4.~~Controls and~~Controlsand Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our ~~Chief~~Principal Executive Officer and our ~~Chief Financial~~Principal Accounting Officer, evaluated the effectiveness of our disclosure controls and procedures as of ~~September~~June 30, ~~2017.~~2018. The term “disclosure controls and procedures,” as defined in Rules13a-15(e) and15d-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~~accounting 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, ~~2017,~~2018, our ~~Chief~~Principal Executive Officer and ~~Chief Financial~~Principal Accounting Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule13a-15(d) of the Exchange Act that occurred during the quarter ended ~~September~~June 30, ~~2017~~2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management included in its assessment of internal control over financial reporting all consolidated entities, but excluded certain acquiree processes related to operations from Auto-Comm and SAFCON acquired by the company on April 18, 2018, and Intelie acquired by the Company on March 23, 2018.

PART II – OTHER INFORMATION

Item 1.Legal Proceedings

In August 2017, the Company filed litigation in Harris County District Court and arbitration against one of its former Chief Executive Officers for, among other things, breach of fiduciary duty, misappropriation of trade secrets, unfair competition and breach of contract. That former executive filed counterclaims against the Company and one of its independent directors. The ~~Company is seeking repayment of certain severance benefits~~parties entered into a settlement agreement resolving all claims amongst themselves in May 2018 and ~~injunctive relief.~~dismissed the litigation and arbitration proceedings. The Company has incurred legal expense of approximately ~~$0.3~~$0.2 million in connection with this dispute for the ~~nine~~six months ended ~~September~~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 this dispute, the total costs to be incurred or the potential impact on personnel.2018.

Inmarsat plc (Inmarsat), a satellite telecommunications company, and the Company are in a dispute relating to a January 2014 ~~take or pay~~ agreement toregarding the purchase by the Company of up to $65.0 million, under certain conditions, of GX capacity from Inmarsat over several ~~years. The parties are attempting to resolve~~years (GX dispute). Inmarsat initiated arbitration regarding the GX 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. In addition, the Company has filed certain counterclaims against Inmarsat. The parties have agreed to divide the arbitration into two phases, with the first phase to decide if RigNet’s purchase obligation ever commenced and the second phase to address RigNet’s counterclaims against Inmarsat. The parties attended an arbitration hearing on the first phase in June 2018 and are currently awaiting the decision of the arbitration panel.

The Company, in the ordinary course of business, is a claimant or a defendant in various other 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.

Item 1A.Risk Factors

There have been no material changes from the risk factors disclosed in “Part I, Item 1A. Risk Factors” of our Annual Report on Form10-K for the year ended December 31, ~~2016.~~2017.

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

None

Item 3.Defaults Upon ~~Senior Securities~~SeniorSecurities

None

Item 4.Mine Safety Disclosures

Not applicable.

Item 5.Other Information

None

Item 6.Exhibits

The exhibits required to be filed with this Quarterly Report on Form10-Q are listed in the Exhibit Index attached hereto and are incorporated herein by reference.


INDEX TO EXHIBITS

~~2.2~~2.1		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 Form10-Q filed with the SEC on May 9, 2016, and incorporated herein by reference)

2.2		Share Purchase and Sale Agreement between RigNet, Inc. and the shareholders of Intelie Solucoes Em Informatica S.A. dated January 15, 2018 (filed as Exhibit 2.1 to the Registrant’s Current Report on Form8-K filed with the SEC on January 17, 2018, 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 Form10-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. (filed as Exhibit 3.2 to the Registrant’s Quarterly Report on Form10-Q filed with the SEC on August 8, 2016, and incorporated herein by reference)

3.3		Second Amended and Restated Bylaws of the Registrant, as amended (filed as Exhibit 3.3 to the Registrant’s ~~Quarterly~~Annual Report on Form~~10-Q~~10-K filed with the SEC on ~~August 8, 2016,~~March 6, 2018, and incorporated herein by reference)

~~3.4~~10.1+		Omnibus Amendment to ~~the Amended and Restated Bylaws of RigNet, Inc., effective May 18, 2016~~Incentive Plan Award Agreements (filed as Exhibit ~~3.1~~10.3 to the Registrant’s Current Report on Form8-K filed with the SEC on May ~~24, 2016,~~3, 2018, and incorporated herein by reference)

~~10.1+~~10.2+		~~Consulting Services~~Form of Restricted Stock Unit Award Agreement between the Registrant and William Sutton dated July 13, 2017 (filed as Exhibit 10.1+ to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on August 7, 2017, and incorporated herein by reference)

~~10.2~~10.3+		~~Third Amended and Restated Credit~~Form of Incentive Stock Option Award Agreement dated as of November 6, 2017 among RigNet, Inc. as Borrower, the Subsidiaries of RigNet party thereto as Guarantors, Bank of America, N.A. as Administrative Agent, Swingline Lender and L/C Issuer, Compass Bank, as Syndication Agent, the Lenders party thereto and Merrill Lynch, Pierce, Fenner & Smith Incorporated as Sole Lead Arranger and Sole Bookrunner.

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

31.2		Certification of ~~Chief Financial~~Principal Accounting 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~~Principal Accounting 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.LAB		XBRL Label Linkbase Document

101.PRE		XBRL Presentation Linkbase Document

101.DEF		XBRL Definition Linkbase Document

+	Indicates management contract or compensatory plan.

SIGNATURES

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.


		RIGNET, INC.

Date: ~~November~~August 6, ~~2017~~2018	By:	/s/ ~~CHARLES E. SCHNEIDER~~TONYA M. MCDERMOTT
	~~Charles E. Schneider~~	Tonya M. McDermott
		~~Senior Vice President and~~Interim Chief Financial Officer and Vice President of Tax and Treasury (Principal Financial Officer)

	By:	/s/ BENJAMIN A. CARTER
		Benjamin A. Carter
		Director of Accounting and Financial Reporting (Principal Accounting Officer)


	Nine Months Ended September 30,
	2016
	(in thousands, except per share amounts)
Revenue	$	168,899
Expenses		176,267

Net loss	$	(7,368	)

Net loss attributable to RigNet, Inc. common stockholders	$	(7,539	)

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

Diluted	$	(0.43	)


2017		2,154
2018		57,770
2019		76

Total debt, including current maturities	$	60,000


	Three Months Ended September 30, 2017
	Managed Services		Applications and Internet-of- Things		Systems Integration			Corporate and Eliminations			Consolidated Total
	(in thousands)
Revenue	$	40,243	$	4,985	$	5,616		$	—		$	50,844
Cost of revenue (excluding depreciation and amortization)		24,902		3,394		4,089			—			32,385
Depreciation and amortization		5,263		835		615			1,286			7,999
Selling, general and administrative		3,013		363		280			9,755			13,411

Operating income (loss)	$	7,065	$	393	$	632		$	(11,041	)	$	(2,951	)

Capital expenditures		5,655		198		—			—			5,853

	Three Months Ended September 30, 2016
	Managed Services		Applications and Internet-of- Things		Systems Integration			Corporate and Eliminations			Consolidated Total
	(in thousands)
Revenue	$	45,653	$	1,552	$	3,407		$	—		$	50,612
Cost of revenue (excluding depreciation and amortization)		26,253		696		2,911			—			29,860
Depreciation and amortization		6,716		—		631			958			8,305
Selling, general and administrative		5,235		67		499			6,399			12,200

Operating income (loss)	$	7,449	$	789	$	(634	)	$	(7,357	)	$	247

Capital expenditures		1,936		—		—			—			1,936

	Nine Months Ended September 30, 2017
	Managed Services		Applications and Internet-of- Things		Systems Integration			Corporate and Eliminations			Consolidated Total
	(in thousands)
Revenue	$	122,531	$	9,846	$	15,701		$	—		$	148,078
Cost of revenue (excluding depreciation and amortization)		75,798		6,844		12,656			—			95,298
Depreciation and amortization		17,509		849		1,813			2,696			22,867
Selling, general and administrative		12,435		1,149		1,179			22,606			37,369

Operating income (loss)	$	16,789	$	1,004	$	53		$	(25,302	)	$	(7,456	)

Total assets		184,678		33,353		15,857			3,960			237,848
Capital expenditures		13,081		198		—			645			13,924

	Nine Months Ended September 30, 2016
	Managed Services		Applications and Internet-of- Things		Systems Integration			Corporate and Eliminations			Consolidated Total
	(in thousands)
Revenue	$	146,766	$	5,079	$	16,019		$	—		$	167,864
Cost of revenue (excluding depreciation and amortization)		85,455		2,176		11,781			—			99,412
Depreciation and amortization		20,032		—		2,127			3,402			25,561
Impairment of goodwill and intangible assets		—		—		—			397			397
Selling, general and administrative		20,631		201		2,141			21,979			44,952

Operating income (loss)	$	20,648	$	2,702	$	(30	)	$	(25,778	)	$	(2,458	)

Total assets		213,739		—		26,139			4,800			244,678
Capital expenditures		10,365		—		—			1,146			11,511

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