Delaware


~~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~~code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value per share	RNET	NASDAQ Global Select Market

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~~ .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.


Large accelerated filer☐	☐		Accelerated filer		☒

Non-accelerated filer☐	~~☐ (Do not check if a smaller reporting company)~~	Smaller reporting company☒		☐

		Emerging growth company		☐

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 31, 2017,~~April 30, 2020, there were outstanding ~~18,225,194~~20,455,615 shares of the registrant’s Common Stock.

~~TABLE OF CONTENTS~~

Table of Contents

					Page
			~~Page~~

		PART I – FINANCIAL INFORMATION

Glossary			3
Item 1		Condensed Consolidated Financial Statements (Unaudited)		3	5

Item 2		Management’s Discussion and Analysis of Financial Condition and Results of Operations		22

Item 3		Quantitative and Qualitative Disclosures about Market Risk		34	32

Item 4		Controls and Procedures		35	32

		PART II – OTHER INFORMATION

Item 1		Legal Proceedings		36	33

Item 1A		Risk Factors		36	33

Item 2		Unregistered Sales of Equity Securities and Use of Proceeds	34
	36
Item 3		Defaults Upon Senior Securities	34

Item 4		Mine Safety Disclosures	34

Item 5		Other Information	34

Item 6		Exhibits	34

Glossary

The table below sets forth a number of terms commonly used in our current and periodic reports filed with the Securities and Exchange Commission and is provided as a reference for the readers of our filings.


~~Item 3~~Adjusted EBITDA		~~Defaults Upon Senior~~ A non-GAAP measure. Net loss plus (minus) interest expense, income tax expense (benefit), depreciation and amortization, impairment of goodwill, intangibles, property, plant and equipment, foreign exchange impact of intercompany financing activities, (gain) loss on sales of property, plant and equipment, net of retirements, change in fair value of earn-outs and contingent consideration, stock-based compensation expense, acquisition costs, executive departure costs, restructuring charges, the GX Dispute, the GX Dispute Phase II costs and non-recurring items. A reconciliation of Adjusted EBITDA to Net loss can be found in Part 1, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
AI		Artificial Intelligence
Apps		Applications
ASC		Accounting Standards Codification
ASU		Accounting Standards Update
AVI		Adaptive Video Intelligence
B2B		Business to Business
BOP		Blow-Out Preventer
CIEB		Costs and Estimated Earnings in Excess of Billings on uncompleted contracts
Credit Agreement		Third Amendment and Joinder to the Third Amended and Restated Credit Agreement dated as of February 21, 2020 among RigNet, Inc. as Borrower, the Subsidiaries of RigNet, Inc. party thereto as Guarantors, Bank of America, N.A. as Administrative Agent, Swingline Lender and L/C Issuer, BBVA Compass, as Syndication Agent, the Lenders party hereto and Merrill Lynch, Pierce, Fenner & Smith Incorporated as Sole Lead Arranger and Sole Bookrunner, as amended.
Consolidated Leverage Ratio		The ratio, as of any given date, of Consolidated Funded Indebtedness to Consolidated EBITDA for the most recently completed Measurement Period (as each such capitalized term is defined in the Credit Agreement)
COVID-19		Coronavirus
Cyphre®		Cyphre Security Solutions, LLC, acquired in 2017, provides cybersecurity solutions with advanced enterprise data protection
ECS		Enhanced Cyber Security
EPC		Engineering, Procurement and Construction
Exchange Act		The United States Securities Exchange Act of 1934, as amended
FASB		Financial Accounting Standards Board
FCC	36	Federal Communications Commission
GAAP		Generally Accepted Accounting Principles in the United States
GX		Inmarsat plc’s Global Express satellite bandwidth service
GX Dispute		Inmarsat, a satellite telecommunications company, filed arbitration with the International Centre for Dispute Resolution tribunal in October 2016 concerning a January 2014 take-or-pay agreement to purchase up to $65.0 million, under certain conditions, of GX capacity from Inmarsat over several years. This arbitration and related developments are collectively referred to as the GX Dispute.
GX Dispute Phase II		The portion of the GX Dispute arbitration which was to address RigNet’s counterclaims against Inmarsat on a variety of subjects, as well as Inmarsat’s additional claims and for interest and attorneys’ fees.
Intelie		Intelie soluções em Informática SA, acquired in 2018, provides machine learning and real-time predictive analytics
IoT		Internet-of-Things
LIBOR		London Interbank Offered Rate


~~Item 4~~LTE		~~Mine Safety Disclosures~~		36
			A 4G and 5G technology, Long Term Evolution
~~Item 5~~MCS		~~Other Information~~		36
			Managed Communications Services
~~Item 6~~NASDAQ		~~Exhibits~~ NASDAQ Global Select Market, where RigNet’s common shares are listed for trading
Nessco		Nessco Group Holdings LTD, acquired in 2012, provides Systems Integration solutions
NOC	36	Network Operations Center
OPEC		Organization of Petroleum Exporting Countries
PLC		Programmable Logic Controller
SaaS		Software as a Service
SAB		Staff Accounting Bulletin
SCADA		Supervisory Control and Data Acquisition
SEC		The United States Securities and Exchange Commission
SI		Systems Integration
TECNOR		Orgtec S.A.P.I. de C.V., d.b.a. TECNOR, acquired in March 2016, increases solutions offerings in Mexico
The Tax Act		The Tax Cuts and Jobs Act of 2017

PART I – ~~FINANCIAL~~FINANCIAL INFORMATION

Item 1.Condensed Consolidated Financial Statements

RIGNET, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

								March 31,			December 31,
	September 30, 2017			December 31, 2016					2020			2019
	(in thousands, except share amounts)							(in thousands, except share amounts)
ASSETS							ASSETS
Current assets:
Cash and cash equivalents	$	32,900		$	57,152			$	13,614		$	12,941
Restricted cash		43			139				40			42
Accounts receivable, net		49,216			48,672				63,529			67,059
Costs and estimated earnings in excess of billings on uncompleted contracts		1,773			2,382
Costs and estimated earnings in excess of billings on uncompleted contracts (CIEB)									15,848			13,275
Prepaid expenses and other current assets		6,743			10,379				6,046			6,500

Total current assets		90,675			118,724				99,077			99,817
Property, plant and equipment, net		62,895			59,757				57,297			60,118
Restricted cash		1,500			1,514				1,523			1,522
Goodwill		37,122			21,998				20,464			46,792
Intangibles, net		32,341			16,028				26,871			30,145
Right-of-use lease asset									6,660			6,829
Deferred tax and other assets		13,315			12,951				5,702			5,757

TOTAL ASSETS	$	237,848		$	230,972			$	217,594		$	250,980

LIABILITIES AND EQUITY							LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	12,195		$	9,057			$	23,252		$	28,517
Accrued expenses		15,592			12,835				17,635			16,660
Current maturities of long-term debt		8,545			8,478				8,747			10,793
Income taxes payable		240			877				2,420			2,649
GX dispute accrual									750			750
Deferred revenue and other current liabilities		9,340			3,625				11,966			11,173

Total current liabilities		45,912			34,872				64,770			70,542
Long-term debt		51,455			52,990				105,087			96,934
Deferred revenue		263			254				853			855
Deferred tax liability		301			256				2,034			2,672
Right-of-use lease liability - long-term portion									6,166			6,329
Other liabilities		27,365			30,022				22,614			26,771

Total liabilities		125,296			118,394				201,524			204,103

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	)		—
Stockholders' equity
Preferred stock - $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding at March 31, 2020 and December 31, 2019									-			-
Common stock - $0.001 par value; 190,000,000 shares authorized; 20,454,705 and 19,979,284 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively									20			20
Treasury stock - 432,432 and 203,756 shares at March 31, 2020 and December 31, 2019, respectively, at cost									(3,271	)		(2,693	)
Additionalpaid-in capital		154,959			147,906				188,425			184,571
Accumulated deficit		(28,057	)		(17,550	)			(142,514	)		(115,673	)
Accumulated other comprehensive loss		(14,468	)		(17,971	)			(26,659	)		(19,502	)

Total stockholders’ equity		112,336			112,403
Non-redeemable,non-controlling interest		216			175

Total stockholders' equity									16,001			46,723
Non-redeemable, non-controlling interest									69			154
Total equity		112,552			112,578				16,070			46,877

TOTAL LIABILITIES AND EQUITY	$	237,848		$	230,972			$	217,594		$	250,980

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 March 31,
	Three Months Ended September 30,						Nine Months Ended September 30,						2020			2019
	2017			2016			2017			2016			(in thousands, except per share amounts)
	(in thousands, except per share amounts)
Revenue	$	50,844		$	50,612		$	148,078		$	167,864		$	58,761		$	57,510

Expenses:
Cost of revenue (excluding depreciation and amortization)		32,385			29,860			95,298			99,412			37,950			36,456
Depreciation and amortization		7,999			8,305			22,867			25,561			6,931			8,912
Impairment of intangible assets		—			—			—			397
Impairment of goodwill														23,141			-
Selling and marketing		2,400			1,724			5,968			5,559			2,812			3,793
General and administrative		11,011			10,476			31,401			39,393			13,829			16,470

Total expenses		53,795			50,365			155,534			170,322			84,663			65,631

Operating income (loss)		(2,951	)		247			(7,456	)		(2,458	)
Operating loss														(25,902	)		(8,121	)
Other income (expense):
Interest expense		(689	)		(729	)		(1,921	)		(2,040	)		(1,528	)		(1,238	)
Other income (expense), net		209			(426	)		62			(397	)		(321	)		72

Loss before income taxes		(3,431	)		(908	)		(9,315	)		(4,895	)		(27,751	)		(9,287	)
Income tax expense		(762	)		(540	)		(1,075	)		(2,676	)

Income tax benefit (expense)														980			(2,666	)
Net loss		(4,193	)		(1,448	)		(10,390	)		(7,571	)		(26,771	)		(11,953	)
Less: Net income attributable tonon-redeemable,non-controlling interest		39			210			117			171

Less: Net loss attributable to non-redeemable, non-controlling interest														70			30
Net loss attributable to RigNet, Inc. stockholders	$	(4,232	)	$	(1,658	)	$	(10,507	)	$	(7,742	)	$	(26,841	)	$	(11,983	)

COMPREHENSIVE LOSS
Net loss	$	(4,193	)	$	(1,448	)	$	(10,390	)	$	(7,571	)	$	(26,771	)	$	(11,953	)
Foreign currency translation		1,737			(363	)		3,503			(1,954	)		(7,157	)		158

Comprehensive loss		(2,456	)		(1,811	)		(6,887	)		(9,525	)		(33,928	)		(11,795	)
Less: Comprehensive income (loss) attributable tonon-controlling interest		39			210			117			171	��

Less: Comprehensive income attributable to non-controlling interest														70			30
Comprehensive loss attributable to RigNet, Inc. stockholders	$	(2,495	)	$	(2,021	)	$	(7,004	)	$	(9,696	)	$	(33,998	)	$	(11,825	)

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	)	$	(26,841	)	$	(11,983	)

Net loss per share attributable to RigNet, Inc. common stockholders, basic	$	(0.23	)	$	(0.09	)	$	(0.58	)	$	(0.44	)	$	(1.34	)	$	(0.63	)

Net loss per share attributable to RigNet, Inc. common stockholders, diluted	$	(0.23	)	$	(0.09	)	$	(0.58	)	$	(0.44	)	$	(1.34	)	$	(0.63	)

Weighted average shares outstanding, basic		18,086			17,782			17,982			17,677			20,081			18,949

Weighted average shares outstanding, diluted		18,086			17,782			17,982			17,677			20,081			18,949

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,						Three Months Ended March 31,
	2017			2016			2020			2019
	(in thousands)						(in thousands)
Cash flows from operating activities:
Net loss	$	(10,390	)	$	(7,571	)	$	(26,771	)	$	(11,953	)
Adjustments to reconcile net loss to net cash provided by operations:
Depreciation and amortization		22,867			25,561			6,931			8,912
Impairment of intangible assets		—			397
Impairment of goodwill								23,141			-
Stock-based compensation		2,949			2,708			3,854			4,458
Amortization of deferred financing costs		192			132			93			61
Deferred taxes		(271	)		(1,461	)		(626	)		2,469
Change in fair value ofearn-out/contingent consideration		(846	)		(1,279	)
Accretion of discount of contingent consideration payable for acquisitions		417			378			134			94
(Gain) loss on sales of property, plant and equipment, net of retirements		55			(164	)		30			(7	)
Changes in operating assets and liabilities, net of effect of acquisition:
Accounts receivable		(122	)		10,498
Costs and estimated earnings in excess of billings on uncompleted contracts		716			4,078
Accounts receivable, net								2,490			(6,777	)
Costs and estimated earnings in excess of billings on uncompleted contracts (CIEB)								(3,000	)		1,439
Prepaid expenses and other assets		3,714			(4,927	)		213			85
Right-of-use lease asset								169			-
Accounts payable		1,697			(475	)		(2,689	)		4,058
Accrued expenses		1,733			(5,741	)		1,147			(38	)
Deferred revenue and other assets		6,212			67
Deferred revenue								861			3,074
Right-of-use lease liability								(231	)		-
Other liabilities		(8,035	)		553			(2,195	)		(1,227	)

Net cash provided by operating activities		20,888			22,754			3,551			4,648

Cash flows from investing activities:
Acquisitions		(32,205	)		(4,841	)
Capital expenditures		(13,186	)		(11,152	)		(5,337	)		(4,814	)
Proceeds from sales of property, plant and equipment		274			205			-			66
Increase (decrease) in restricted cash		110			(1,098	)

Net cash used in investing activities		(45,007	)		(16,886	)		(5,337	)		(4,748	)

Cash flows from financing activities:
Proceeds from issuance of common stock		684			1,606
Issuance of common stock upon the exercise of stock options and the vesting of restricted stock								-			1
Stock withheld to cover employee taxes on stock-based compensation								(578	)		(1,407	)
Subsidiary distributions tonon-controlling interest		(76	)		(197	)		(155	)		(135	)
Proceeds from borrowings		15,000			—			3,750			-
Repayments of long-term debt		(16,660	)		(9,420	)		(41	)		(1,295	)
Payment of financing fees		—			(100	)		(485	)		(250	)

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

Net cash provided by (used in) financing activities								2,491			(3,086	)
Net change in cash and cash equivalents		(25,171	)		(2,243	)		705			(3,186	)

Cash and cash equivalents:
Cash and cash equivalents including restricted cash:
Balance, January 1,		57,152			60,468			14,505			23,296
Changes in foreign currency translation		919			(986	)		(33	)		91

Balance, September 30,	$	32,900		$	57,239
Balance, March 31,							$	15,177		$	20,201

Supplemental disclosures:
Income taxes paid	$	1,515		$	5,890		$	1,081		$	737
Interest paid	$	1,362		$	1,527			1,245			1,019
Property, plant and equipment acquired under capital leases	$	—		$	335
Non-cash investing - capital expenditures accrued	$	2,785		$	653			868			4,398
Non-cash investing - tenant improvement allowance	$	1,728		$	—
Non-cash investing - contingent consideration for acquisitions	$	3,798		$	5,553
Non-cash investing and financing - stock for Cyphre Security Solutions	$	3,304		$	—
Liabilities assumed in acquisitions	$	674		$	2,408
Right-of-use operating lease entered into								121			-

	March 31,		March 31,
		2020		2019
Cash and cash equivalents	$	13,614	$	18,660
Restricted cash - current portion		40		42
Restricted cash - long-term portion		1,523		1,499
Cash and cash equivalents including restricted cash	$	15,177	$	20,201

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
Shares Amount Shares Amount
(in thousands)
Balance, January 1, 2016
17,758 $ 18 —   $ —   $ 143,012 $ (6,043 ) $ (13,836 ) $ 123,151 $ 162 $ 123,313
Issuance of common stock upon the exercise of stock options
213 —   —   —   1,606 —   —   1,606 —   1,606
Restricted common stock cancellations
(44 ) —   —   —   —   —   —   —   —   —
Stock-based compensation
—   —   —   —   2,708 —   —   2,708 —   2,708
Foreign currency translation
—   —   —   —   —   —   (1,954 ) (1,954 ) —   (1,954 )
Non-controlling owner distributions
—   —   —   —   —   —   —   —   (197 ) (197 )
Net income (loss)
—   —   —   —   —   (7,742 ) —   (7,742 ) 171 (7,571 )

Balance, September 30, 2016
17,927 $ 18 —   $ —   $ 147,326 $ (13,785 ) $ (15,790 ) $ 117,769 $ 136 $ 117,905

Balance, January 1, 2017
17,933 $ 18 —   $ —   $ 147,906 $ (17,550 ) $ (17,971 ) $ 112,403 $ 175 $ 112,578
Issuance of common stock upon the exercise of stock options
58 —   —   —   800 —   —   800 —   800
Issuance of common stock upon the vesting of Restricted Stock Units, net of share cancellations
48 —   —   —   —   —   —   —   —   —
Issuance of common stock upon the acquisition of Cyphre
192 —   —   —   3,304 —   —   3,304 —   3,304
Stock witheld to cover employee taxes on stock-based compensation
(6 ) —   6 (116 ) —   —   —   (116 ) —   (116 )
Stock-based compensation
—   —   —   —   2,949 —   —   2,949 —   2,949
Foreign currency translation
—   —   —   —   —   —   3,503 3,503 —   3,503
Non-controlling owner distributions
—   —   —   —   —   —   —   —   (76 ) (76 )
Net income (loss)
—   —   —   —   —   (10,507 ) —   (10,507 ) 117 (10,390 )

Balance, September 30, 2017
18,225 $ 18 6 $ (116 ) $ 154,959 $ (28,057 ) $ (14,468 ) $ 112,336 $ 216 $ 112,552

	Common Stock				Treasury Stock					Additional					Accumulated Other			Total			Non-Redeemable,
	Shares		Amount		Shares		Amount			Paid-In Capital		Accumulated Deficit			Comprehensive Loss			Stockholders' Equity			Non-Controlling Interest			Total Equity
	(dollars and shares in thousands)
Balance, January 1, 2019		19,465	$	19		92	$	(1,270	)	$	172,946	$	(96,517	)	$	(19,254	)	$	55,924		$	60		$	55,984
Issuance of common stock upon the vesting of Restricted Stock Units, net of share cancellations		246		1		-		-			-		-			-			1			-			1
Stock withheld to cover employee taxes on stock-based compensation		-		-		106		(1,407	)		-		-			-			(1,407	)		-			(1,407	)
Stock-based compensation		-		-		-		-			4,458		-			-			4,458			-			4,458
Foreign currency translation		-		-		-		-			-		-			158			158			-			158
Non-controlling owner distributions		-		-		-		-			-		-			-			-			(135	)		(135	)
Net income (loss)		-		-		-		-			-		(11,983	)		-			(11,983	)		30			(11,953	)
Balance, March 31, 2019		19,711	$	20		198	$	(2,677	)	$	177,404	$	(108,500	)	$	(19,096	)	$	47,151		$	(45	)	$	47,106

Balance, January 1, 2020		19,979	$	20		204	$	(2,693	)	$	184,571	$	(115,673	)	$	(19,502	)	$	46,723		$	154		$	46,877
Issuance of common stock upon the vesting of Restricted Stock Units, net of share cancellations		475		-		-		-			-		-			-			-			-			-
Stock withheld to cover employee taxes on stock-based compensation		-		-		228		(578	)		-		-			-			(578	)		-			(578	)
Stock-based compensation		-		-		-		-			3,854		-			-			3,854			-			3,854
Foreign currency translation		-		-		-		-			-		-			(7,157	)		(7,157	)		-			(7,157	)
Non-controlling owner distributions		-		-		-		-			-		-			-			-			(155	)		(155	)
Net income (loss)		-		-		-		-			-		(26,841	)		-			(26,841	)		70			(26,771	)
Balance, March 31, 2020		20,454	$	20	$	432	$	(3,271	)	$	188,425	$	(142,514	)	$	(26,659	)	$	16,001		$	69		$	16,070

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~~2019 included in the Company’s Annual Report on Form10-K filed with the Securities and Exchange Commission on March ~~6, 2017.~~11, 2020.

Significant Accounting Policies

~~Please~~In addition to the accounting policies described below, please refer to RigNet’s Annual Report on Form10-K for the fiscal year ~~2016~~2019 for information regarding the Company’s accounting policies.

~~Recently Issued Accounting Pronouncements~~

~~In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards UpdateNo. 2014-09~~ ~~(ASU2014-09),~~Revenue Recognition – Revenue from Contracts with Customers ~~(Topic 606). The core principle of this amendment~~

Revenue is ~~that an entity should recognize revenue~~recognized to depict the transfer of promised goods or services ~~to customers~~ in an amount that reflects the consideration to which the ~~entity~~Company expects to be entitled in exchange for those goods or services. ~~In August 2015,~~

Revenue Recognition – Managed Communications Services (MCS) and Applications and Internet-of-Things (Apps & IoT)

MCS and Apps & IoT customers are primarily served under fixed-price contracts, either on a monthly, usage or day rate basis or for equipment sales and consulting services. Contracts are generally in the ~~FASB issued~~form of Master Service Agreements, or MSAs, with specific services being provided under individual service orders. Offshore contracts generally have a term of up to five years with renewal options. Land-based contracts 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). With certain customers, our contracts require that the contract backlog on stack rigs be transferred to other units, preserving the total contract value.

Performance Obligations Satisfied Over Time — The delivery of service represents the single performance obligation under MCS and Apps & IoT 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, usage 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 (the cost-to-cost method).

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 the 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 (CIEB).

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 March 31, 2020, and December 31, 2019, the amount of CIEB related to Systems Integration projects was $15.8 million and $13.3 million, respectively. Under long-term contracts, amounts recorded in CIEB may not be realized or paid within a one-year period. As of March 31, 2020 and December 31, 2019, $1.3 million and $1.0 million, respectively, of amounts billed to customers in excess of revenue recognized to date were classified as a current liability, under deferred revenue and other current liabilities.

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 CIEB. No material unapproved change orders or claims revenue were included in CIEB as of March 31, 2020, and December 31, 2019. As new facts become known, an adjustment to the estimated recovery is made and reflected in the current period.

Backlog - As of March 31, 2020, we have a backlog for our percentage of completion projects of $22.4 million, which will be recognized over the remaining contract term for each contract. The percentage of completion contract terms are typically one to three years. As of December 31, 2019, we had a backlog for our percentage of completion projects of $26.2 million.

Leases

Effective with adoption of Accounting Standards UpdateNo. ~~2015-14~~2016-02 (ASU~~2015-14)~~ 2016-02), ~~Revenue from Contracts with Customers (Topic 606): Deferral~~ Leases (the new lease standard) on January 1, 2019, we determine if an arrangement is a lease at inception. Operating leases right-of-use assets and liabilities are included in right-to-use lease asset, deferred revenue and other current liabilities, and right-to-use lease liability – long-term portion on our condensed consolidated balance sheets. Finance leases are included in property, plant and equipment; current maturities of long-term debt; and long-term debt on our condensed consolidated balance sheets.

Operating lease right-to-use assets and liabilities are recognized based on the present value of the ~~Effective Date.~~ future minimum lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

Recently Issued Accounting Pronouncements

In ~~March~~June 2016, the FASB issued Accounting Standards UpdateNo. ~~2016-08~~2016-13 (ASU~~2016-08)~~ 2016-13), ~~Revenue from Contracts with Customers: Principal versus Agent Considerations.~~ which measures credit losses on most financial assets and certain other instruments that are not measured at fair value through net income. The ~~amendments are intended~~update amends the impairment model to ~~improve the operability and understandability~~utilize a current expected credit loss (CECL) methodology in place of the ~~implementation~~incurred loss methodology for financial instruments, including trade receivables. The amendment requires entities to consider a broader range of information to estimate expected credit losses, which may result in earlier recognition of losses. Companies will apply this standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the 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 areis effective. The new standard is effective for interim and 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.2019. The

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Company ~~will adopt this ASU on~~adopted the guidance effective January 1, ~~2018. The Company’s evaluation of this ASU included a detailed review of representative contracts from each segment~~2020, and comparing historical accounting policies and practices to the new standard. The Company does not expect the adoption of this ASU to have a material impact on its 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 on the Company’s 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, and classification on the statement of cash flows. This ASU is effective for reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company adopted ASU~~2016-09~~ ~~in the second quarter of 2016 and has applied~~ the guidance ~~as of January 1, 2016. The adoption of this ASU~~ did not have a material impact on the Company’s condensed consolidated financial statements.

In August ~~2016,~~2018, the FASB issued ~~Accounting Standards Update~~ASU No. ~~2016-15~~2018-13 (ASU~~2016-15)~~ 2018-13), ~~Statement~~ which eliminates disclosures, modifies existing disclosures and adds new Fair Value disclosure requirements to Topic 820 for the range and weighted average 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. significant unobservable inputs used to develop Level 3 fair value measurements. The ASU is effective for annual and interim reporting periods beginning after December 15, ~~2017. Early adoption is permitted.~~ 2019. The Company ~~is currently in~~adopted the ~~process of evaluating~~guidance effective January 1, 2020, and the guidance did not have a material impact ~~the adoption of this ASU will have~~ on the Company’s condensed consolidated financial statements.

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

In ~~November 2016,~~August 2018, the FASB issued ~~Accounting Standards Update~~ASU No. ~~2016-18~~2018-15 (ASU~~2016-18)~~ 2018-15), which ~~includes restricted cash~~provides guidance on implementation costs incurred in ~~the cash and cash equivalents balance in the statement of cash flows.~~a cloud computing arrangement that is a service contract. The ASU is effective for annual and interim reporting periods beginning after December 15, ~~2017.~~2019. The Company isadopted the guidance effective January 1, 2020, and the guidance did not have a material impact on the Company’s condensed consolidated financial statements.

In December 2019, the FASB issued Accounting Standards Update No. 2019-12 (ASU 2019-12), Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU removes certain exceptions for investments, intraperiod allocations and interim tax calculations and adds guidance to reduce complexity in accounting for income taxes. We will be required to adopt the amended guidance in annual and interim periods beginning after December 15, 2020, with early adoption permitted. The various amendments in Update 2019-12 are applied on a retrospective basis, modified retrospective basis and prospective basis, depending on the amendment. We are in the process of evaluating the impact this amendment will have on our consolidated financial statements.

In March 2020, the FASB issued Accounting Standards Update No. 2020-04 (ASU 2020-04), Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional guidance for a limited period of time to ease potential burden in accounting or recognizing the effects of the LIBOR or another reference rate reform on financing rate. The amendments are effective as of March 12, 2020 through December 31, 2022. We are currently in the process of evaluating the impact the ~~adoption of this ASU will have~~transition from LIBOR to alternative reference rates, but we do not expect a material impact on ~~the Company’s~~our consolidated financial statements.

~~Note 2 – Business Combinations~~

~~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. The assets acquired enhance RigNet’s Supervisory Control and Data Acquisition (SCADA) customer portfolio, and strengthen the Company’s US land and~~Internet-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 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 and~~Internet-of-Things~~ ~~segment.~~

   Weighted Average
Estimated Useful
Life (Years)    Fair Market Values
      (in thousands)
Accounts Receivable
         $ 168
Property and equipment
         1,000
Covenant Not to Compete
   5    3,040
Customer Relationships
   7    9,870



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


Total purchase price
         $ 22,200

~~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 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
      (in thousands)
Property and equipment
         $ 4,553
Goodwill
         635
Accounts Payable
         (83 )


Total purchase price
         $ 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 30, 2017, the fair value of the contingent consideration was $3.9 million. During the three and nine months ended September 30, 2017, RigNet recognized accreted interest expense on the Cyphre contingent consideration of $0.1 million with corresponding increases to other liabilities.

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

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

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



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


Total purchase price
         $ 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 million of revenue for the three and nine months ended September 30, 2017. The 2017 acquisitions contributed $0.6 million and $0.3 million to net income for the three and nine months ended September 30, 2017, respectively.

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

   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~~

Note 32 – Business and Credit Concentrations

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

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 65 – 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~~Kroner, 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~~income (loss) in the Company’s condensed consolidated financial statements.

Credit and Customer Concentration Risk

Credit risk, with respect to accounts receivable, is due to ~~the limited number of~~ customers being 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

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

collectability of accounts receivable. The Company provides an allowance for doubtful accounts, which is adjusted when the Company becomes aware of a specific customer’s inability to meet its financial obligations or as a result of changes in the overall aging of accounts receivable. The company determined ASU 2016-13 did not have a material impact on allowance for doubtful accounts. Although no single customer comprised over 10% of our revenue for the three months ended March 31, 2020, our top 5 customers generated 26.7% of the Company’s revenue for the three months ended March 31, 2020.

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~~2020 or ~~2016.~~2019. 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 65 – Long-Term Debt).

Note 43 – 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~~The oil and gas industry experienced an unprecedented disruption during the first quarter of 2020 as a result of a combination of factors, including the coronavirus (“COVID-19”) pandemic and disagreements between the Organization of Petroleum Exporting Countries (OPEC) in March 2020 regarding reduction on production of oil. These market conditions have significantly impacted the Company’s internal forecast. As a result, the Company performed an interim goodwill impairment test. The Company used the income approach to estimate the ~~change in segments (see Note 12 – Segment Information) and~~fair value of its reporting units, ~~during~~but also considered the ~~third quarter~~market approach to validate the results. The income approach estimates the fair value by discounting each reporting unit’s estimated future cash flows using the Company’s discount rate. Some of ~~2017,~~ the ~~Companyre-allocated~~ ~~goodwill to~~significant assumptions inherent in the income approach include the estimated future net annual cash flows for each reporting unit ~~based on relative fair value.~~

and the discount rate. The Company ~~acquired $8.6 million of goodwill~~selected the assumptions used in the ~~ESS acquisition completed on July 28, 2017 (see Note 2 – Business Combinations).~~

discounted cash flow projections using historical information with supplemental data by current and anticipated market conditions and estimated growth rates. The Company's estimates are based upon assumptions believed to be reasonable. The Company ~~acquired $0.6~~determined that the carrying amount in two of our reporting units was in excess of their fair value which results in a goodwill impairment charge of $23.1 million. The charge fully impairs goodwill previously reported in MCS of $21.8 million and Systems Integration of ~~goodwill in the DTS acquisition completed on July 24, 2017 (see Note 2 – Business Combinations).~~

$1.4 million. The ~~Company acquired $4.6 million of goodwill in 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 ~~on July 31~~^st~~of each year, with the most recent annual test being performed as of July 31, 2017. The July 2017 annual test~~for Apps & IoT resulted in no impairment asrelated to the ~~fair value~~goodwill balance of ~~each reporting unit exceeded the carrying value plus goodwill of that reporting unit. No impairment indicators have been identified in any reporting unit~~$20.5 million as of ~~September 30, 2017~~March 31, 2020. The Company's estimates are based upon assumptions believed to be reasonable. However, given the inherent uncertainty in determining the assumptions underlying a discounted cash flow analysis, particularly in the current volatile market, actual results may differ from those used in the Company's valuations. Any future downturn in our business could adversely impact the key assumptions in our impairment test.

As of March 31, 2020, and December 31, ~~2016.~~

~~As of September 30, 2017 and December 31, 2016,~~2019, goodwill was ~~$37.1~~$20.5 million and ~~$22.0~~$46.8 million, respectively. Goodwill increases or decreases in value due to the effect of foreign currency translation, ~~and~~ increases with ~~acquisitions.~~acquisitions, and decreases in the event an impairment is recognized.

Intangibles

Intangibles consist of customer relationships,~~non-competes,~~ brand name, backlog, developed technology, ~~backlog~~covenants-not-to-compete and licenses acquired as part of the Company’s acquisitions. Intangibles also include internal-use software.~~internal-use~~ ~~software.~~ The Company’s intangibles have useful lives ranging from ~~1.7~~5.0 to ~~7.0~~20.0 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,~~Based on the indicators discussed above, the Company ~~identified a triggering event~~reviewed certain finite intangible and other long-lived assets 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 30, 2017.~~March 31, 2020. The Company performed a recoverability analysis and determined that

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

the recoverable value was in excess of its carrying value, therefore no impairment was recognized as of March 31, 2020.

As of ~~September 30, 2017~~March 31, 2020, and December 31, ~~2016,~~2019, intangibles were ~~$32.3~~$26.9 million and ~~$16.0~~$30.1 million, respectively. During the three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, the Company recognized amortization expense of ~~$1.9~~$2.1 million and ~~$1.3 million, respectively. During the nine months ended September 30, 2017 and 2016, the Company recognized amortization expense of $4.7 million and $3.9~~$2.5 million, respectively.

The following table sets forth expected amortization expense of intangibles for the remainder of ~~2017~~2020 and the following years (in thousands):


2017		1,833
2018		7,047
2019		5,988
2020		5,021		4,839
2021		4,679		6,190
2022				5,783
2023				5,152
2024				3,657
Thereafter		7,773		1,250
			$	26,871
	$	32,341

Note 54 – Restricted Cash

As of ~~September 30, 2017,~~ March 31, 2020, the Company had restricted cash of $0.1 million and $1.5 million in current and long-term assets, respectively. As of December 31, ~~2016,~~2019, 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~~MCS segment ~~(see~~(see Note 65 – 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 65 – Long-Term Debt

As of ~~September 30, 2017~~March 31, 2020, and December 31, ~~2016,~~2019, the following credit facilities and long-term debt arrangements with financial institutions were in place:

   September 30,    December 31,
   2017    2016
   (in thousands)
Term loan, net of unamortized deferred financing costs
   $ 27,757    $ 34,053
Revolving loan
   32,000    27,000
Capital lease
   243    415




   60,000    61,468
Less: Current maturities of long-term debt
   (8,418 )    (8,399 )
Current maturities of capital lease
   (127 )    (79 )




   $ 51,455    $ 52,990

	March 31,			December 31,
		2020			2019
	(in thousands)
Term Loan	$	16,000		$	5,000
Term-Out Loan		-			25,500
Revolving credit facility (RCF)		95,400			77,150
Vendor Finance Arrangement		2,790			-
Unamortized deferred financing costs		(857	)		(466	)
Finance lease		501			543
		113,834			107,727
Less: Current maturities of long-term debt		(7,627	)		(10,627	)
Current maturities of Vendor Finance Arrangement		(954	)		-
Current maturities of finance lease		(166	)		(166	)
	$	105,087		$	96,934

~~Term Loan~~

AsCredit Agreement

The Company and certain of ~~September 30, 2017,~~its subsidiaries are party to the ~~Company has a term loan (Term Loan) issued under~~Third Amendment to the ~~second amended~~Third Amended and ~~restated credit agreement~~Restated Credit Agreement, dated as of February 21, 2020, with four participating financial institutions ~~(credit agreement). On October 3, 2013,~~(as amended from time to time, the ~~Company amended its~~Credit Agreement), which provides for a $16.0 million term loan (Term Loan), a $100.0 million revolving credit facility (RCF) and a $30.0 million accordion feature. The Term Loan ~~which increased the~~matures on March 31, 2022 with principal ~~balance to $60.0~~installments of $2.0 million ~~from $54.6 million~~due quarterly beginning June 30, 2020. The RCF and ~~extended the maturity of the loan from July 2017 to October 2018.~~accordion, if exercised, mature on August 31, 2022.

The ~~amended Term Loan~~Credit Agreement bears an interest at a rate of LIBOR plus a margin ranging from ~~1.5%~~1.75% to ~~2.5%~~3.25%, determined based on the Company’s Consolidated Leverage Ratio. LIBOR is subject to cease to exist entirely after

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2021. The Credit Agreement addresses this situation with a ~~ratio of funded debt to Consolidated EBITDA, anon-GAAP~~ ~~financial measure as defined~~LIBOR successor rate, being one or more Secured Overnight Financing Rates (SOFR) or another alternate benchmark rate. The Credit Agreement also addresses the situation in which no LIBOR successor rate has been determined. Interest on the ~~credit agreement. Interest~~Credit Agreement is payable ~~monthly along with quarterly principal installments of $2.1 million, with the balance due October 2018.~~monthly. The weighted average interest rate for the three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016 was 3.2%~~2019 were 4.4% 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%~~5.2%, respectively, with an interest rate of ~~3.2%~~4.0% at ~~September 30, 2017.~~March 31, 2020.

Term Loan

As of March 31, 2020, the outstanding principal amount of the Term Loan was $16.0 million, excluding the impact of unamortized deferred financing costs.

RCF

As of March 31, 2020, outstanding draws on the RCF were $95.4 million . In April 2020, the Company drew an additional $3.0 million on the RCF for liquidity purposes.

Covenants and Restrictions

The ~~Term Loan~~Company’s Credit Agreement contains certain covenants and restrictions, including restricting the payment of cash dividends under default, and maintaining certain financial covenants such as a Consolidated Leverage Ratio, of less than or equal to 3.25 through the third quarter of 2020. The Consolidated Leverage Ratio requirement then steps down to 3.00 through the second quarter of 2021 and then steps down to 2.75 for all remaining quarters. The Consolidated Fixed Charge Coverage ratio requirement is greater than or equal to 1.25 through the maturity of the Credit Agreement. If any default occurs related to these covenants that is not cured or waived, the unpaid principal and any accrued interest can be declared immediately due and payable. The facilities under the Credit Agreement are secured by substantially all the assets of the Company.

We believe we have accurately calculated and reported our required debt covenant calculations for the March 31, 2020 reporting period and are in compliance with the required covenant ratios. As of ~~September 30, 2017,~~March 31, 2020, the ~~Term Loan had an outstanding principal balance of $27.9 million.~~Consolidated Leverage Ratio was 3.00 and Consolidated Fixed Charge Coverage Ratio was 2.14.

~~Revolving Loans~~Vendor Finance Agreement

As of ~~September 30, 2017,~~March 31, 2020, the Company had a vendor financing agreement in place, with an outstanding balance of $2.8 million. The outstanding balance bears interest at a rate of 6% and has quarterly payments of $0.3 million of principal and interest through January 2023.

Performance Bonds, Surety Bonds and Other Similar Instruments

As of March 31, 2020, there were $8.5 million of performance bonds, surety bonds and similar instruments outstanding of which $2.1 million is issued by the parties 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, $32.0 million in draws remain outstanding 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.

~~The revolving loan bears an interest rate of LIBOR plus a margin ranging from 1.5% to 2.5% based on a ratio of funded debt to Consolidated EBITDA, anon-GAAP~~ financial measure as defined in the credit agreement. 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.

~~Performance Bonds~~

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, 2017, the amount available under this facility was £2.1 million or $2.9 million. As of September 30, 2017, there were $5.6 million in standby letters of credit issued to collateralize this performance bond facility.Credit Agreement.

In June 2016, the Company secured a performance bond facility with a lender in the amount of $1.5 million for its ~~Managed Services~~MCS 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~~2020 and the following years (in thousands):

2017
   2,154
2018
   57,770
2019
   76


Total debt, including current maturities
   $ 60,000

2020		6,531
2021		8,731
2022		98,263
2023		309
Total debt, including current maturities	$	113,834

~~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, 2020.14

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.~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Note 76 – 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).

•

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

Restricted Cash — Reported amounts approximate fair value.

•

~~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 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.

•

~~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.

•

~~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.

The ~~contingent consideration~~earn-out for ~~Cyphre~~Intelie is measured at fair value in each reporting period, based on level 3 inputs, with any change to the fair value recorded in the Condensed Consolidated Statements of Comprehensive ~~Loss~~Loss. As of March 31, 2020, the fair value of the earn-out was $9.7 million, with $4.4 million in deferred revenue and other current liabilities and $5.3 million in other long-term liabilities. As of December 31, 2019, the fair value of the earn-out was $9.7 million with $4.4 million in deferred revenue and other current liabilities and $5.3 million in other long-term liabilities. During the three months ended March 31, 2020 and 2019, RigNet recognized accreted interest expense on the Intelie earn-out of $0.1 million, and $0.1 million, respectively, with corresponding increases to other liabilities. The earn-out is payable in RigNet stock in portions on the first, second and third anniversary of the March 23, 2018 closing of the acquisition based on certain post-closing performance targets under the acquisition agreement.

The contingent consideration for Cyphre, a cybersecurity company acquired in May 2017, is measured at fair value in each reporting ~~period.~~period, based on level 3 inputs, with any change to the fair value recorded in the Condensed Consolidated Statements of Comprehensive Loss. As of ~~September 30, 2017,~~March 31, 2020, the fair value of the contingent consideration was ~~$3.9 million.~~$3.0 million of which $0.3 million is in other current liabilities and $2.7 million is in other long-term liabilities. As of December 31, 2019, the fair value of the contingent consideration was $3.1 million, of which $0.3 million is in other current liabilities and $2.7 million is in other long-term liabilities. During the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2020 and 2019, RigNet recognized accreted interest expense on the Cyphre contingent consideration of $0.1 million, ~~with corresponding increases to other liabilities.~~

~~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. As of December 31, 2016, 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 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 liabilities. ~~(see Note 2 – Business Combinations).~~During the three months ended March 31, 2020 and 2019, RigNet paid cash of $0.1 million and $0.1 million, respectively, in required royalty payments, with corresponding decreases to other liabilities.

Note 87 – Income Taxes

The Company’s effective income tax rate was ~~(22.2%) and (11.5%)~~3.5% for the three ~~and nine~~ months ended ~~September 30, 2017, respectively.~~March 31, 2020. The Company’s effective income tax rate was ~~(59.5%) and (54.7%~~(28.7%) for the three ~~and nine~~ months ended ~~September 30, 2016, respectively.~~ March 31, 2019. The Company’s effective tax rate is affected by factors including changes in valuation allowances, fluctuations in income across jurisdictions with varying tax rates, and changes in income tax reserves, including related penalties and interest.

The Company has computed the provision for taxes for the current and comparative periods using the 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 received a notice informing us of an audit of the Company’s 2016-2017 income tax returns in Singapore. It is unclear if the audit and the appeals process, if necessary, will be completed within the next twelve months. The Company is in the early stages of the audit and is unable to quantify any potential settlement or outcome of the audit at this time.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company believes that it is reasonably possible that a decrease of up to ~~$3.2~~$3.9 million in unrecognized tax benefits, including related interest and penalties, may be necessary within the coming year due to lapse in statute of limitations.

Note 98 – Stock-Based Compensation

During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2020, the Company granted a total of ~~226,974 restricted stock units (RSUs)~~599,990 stock-based awards to certain ~~directors,~~ officers and employees of the Company under the ~~2010~~2019 Omnibus Incentive Plan ~~(2010~~(2019 Plan). ~~Of these,~~

This stock grant was associated with the ~~Company granted (i) 125,852 RSUs~~payment of the Company’s 2019 short term incentive plan 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 RSUs issued to directors that vest in May 2018 and (iii) 67,536 performance share units (PSUs) to certain officers and employees that generally cliff vest on the third anniversary of the grant date and are subject to continued employment and certain performance based targets. The ultimate number of PSUs issued is based on a multiple determined by certain performance based targets.

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

During the ~~nine~~three months ended ~~September 30, 2017, 126,788~~March 31, 2020, 20,656 RSUs and ~~28,445~~18,340 stock options were forfeited.

Stock-based compensation expense related to the Company’s stock-based compensation plans for the three months ended ~~September 30, 2017 and 2016~~March 31, 2020, was ~~$1.0~~$3.9 million and ~~$0.9 million, respectively.~~reported as a general and administrative expense in the Corporate segment. Stock-based compensation expense related to the Company’s stock-based compensation plans for the ~~nine~~three months ended ~~September 30, 2017 and 2016~~March 31, 2019, was ~~$2.9 million and $2.7 million, respectively.~~$4.5 million. As of ~~September 30, 2017,~~March 31, 2020, there was ~~$8.3~~$5.7 million of total unrecognized compensation cost related to unvested options, RSUs and restricted stock expected to vest. This cost is expected to be recognized over a remaining weighted-average period of ~~1.8~~2.1 years.

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

Note 109 – Earnings (loss) per Share

Basic earnings (loss) per share (EPS) are computed by dividing net loss attributable to RigNet common stockholders by the weighted average number of basic shares ~~outstanding.~~outstanding during the period. Basic shares equal the total of the common shares outstanding, ~~weighted for the average days outstanding for the period. Basic shares exclude~~but excludes 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.~~RSUs or PSUs. Diluted EPS is computed by dividing loss attributable to RigNet common stockholders by the weighted average number of diluted shares ~~outstanding.~~outstanding during the period. 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.~~any. 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 if included, 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~~ months ended ~~September 30, 2017,~~March 31, 2020, there were approximately ~~723,296 and 644,858~~3,551,575 potentially issuable shares ~~respectively,~~excluded from the Company’s calculation of diluted EPS that were excluded because to include them would have been anti-dilutive.

For the three months ended March 31, 2019, there were approximately 1,478,435 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 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 1110 – Commitments and Contingencies

Global Xpress (GX) Dispute

Inmarsat plc (Inmarsat), a satellite telecommunications company ~~and~~, filed arbitration with the ~~Company are~~International Centre for Dispute Resolution tribunal (the panel) in ~~a dispute relating to~~October 2016 concerning a January 2014 take-or-pay agreement ~~regarding the~~to 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~~years.

In June 2019, the Company announced that it reached a settlement with Inmarsat that concludes 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~~Dispute. Pursuant to the ~~service under the agreement. In July 2017, pursuant to its contractual rights under the agreement,~~settlement the Company ~~delivered a notice~~paid $45.0 million in June 2019 and paid $5.0 million in July 2019 and will pay $0.8 million in the third quarter of ~~termination~~2020. The Company had an accrued liability of ~~the agreement to Inmarsat.~~$0.8 million as of March 31, 2020.

The Company ~~has~~ incurred ~~legal expenses~~GX Dispute Phase II costs of ~~$0.8~~$2.1 million ~~in connection with the GX dispute~~ for the ~~nine~~three months ended September 30, 2017. The Company may continue to incur significant legal fees, related expenses and management time in the future. The Company cannot predict the ultimate outcome of the GX dispute, the total costs to be incurred or the potential impact on personnel.March 31, 2019.

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.16

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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~~Company is undergoing a routine sales tax audit infrom a state where itthe Company has ~~operations for~~operations. The audit can cover up to a four-year period. The Company is in the ~~period from August~~early stages 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~~have any estimates of further exposure, if any, for the ~~outcome of the audit will result in a material impact to the consolidated financial statements.~~tax years under review.

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~Contractual Dispute Settlement~~Operating Leases

The Company’s ~~Systems Integration business reached a settlement in the first quarter~~leasing activities primarily consist of ~~2016 related to a contract dispute associated with a percentage~~leases 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.~~

~~Operating Leases~~

~~The Company leases~~real-estate including office space under lease agreements expiring on various dates through 2025. For the three months ended ~~September 30, 2017 and 2016,~~March 31, 2020, the Company recognized expense under operating leases, which approximates cash paid and includes short-term leases, of ~~$0.9 million and $1.2 million, respectively.~~$0.5 million. For the ~~nine~~three months ended ~~September 30, 2017 and 2016,~~March 31, 2019, the Company recognized expense under operating leases, which approximates cash paid and includes short-term leases, of ~~$2.9 million and $3.4 million, respectively.~~$0.7 million.

As of ~~September 30, 2017,~~March 31, 2020, future undiscounted minimum lease ~~obligations~~obligation maturities for the remainder of ~~2017~~2020 and future years were as follows (in thousands):


2017		794
2018		1,871
2019		1,316
2020		886	$	1,671
2021		468		1,480
2022				1,211
2023				1,195
2024				1,200
Thereafter		1,750		3,020

	$	7,085

Total lease payments			$	9,777
Less present value discount				(1,595	)
Amounts recognized in Balance Sheet			$	8,182
Amounts recognized in Balance Sheet
Deferred revenue and other current liabilities				2,016
Right-of-use lease liability - long-term portion				6,166
Total right-to-use lease liability			$	8,182

Operating lease right-of-use assets for leases were $6.7 million as of March 31, 2020.

The right-of-use assets and liabilities for leases were discounted at a weighted-average discount rate of 5.1%. The weighted-average remaining lease term as of March 31, 2020 was 6.9 years

Commercial Commitments

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

As of ~~September 30, 2017,~~March 31, 2020, the Company had the following commercial commitments related to satellite and network services for the remainder of ~~2017~~2020 and the future years thereafter (in thousands):

2017
   4,501
2018
   13,494
2019
   5,920
2020
   473
2021
   455


   $ 24,843

2020		15,240
2021		10,790
2022		5,183
2023		108
	$	31,321

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 (GX) Dispute” above for details of the ongoing arbitration and the Company’s notice to terminate the contract with Inmarsat.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1211 – 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. 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 Communications Services (MCS). The MCS segment provides remote communications, telephony and technology services for offshore and onshore drilling rigs and production facilities, support vessels, and other remote sites.

•

~~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 and Internet-~~Internet-of-Things~~of-Things (Apps & IoT).The Apps & IoT segment provides applicationsover-the-top of the ~~Managed~~network layer including Software as a Service (SaaS) offerings such as a real-time machine learning and AI data platform (Intelie Pipes and Intelie LIVE), Cyphre Encryption, Enhanced Cybersecurity Services (ECS), edge computing solution services that assist customers with collecting and standardizing the complex data produced by edge devices (LIVE-IT), applications for safety and workforce productivity such as weather monitoring primarily in the North Sea (MetOcean), and certain other value-added services such as Adaptive Video Intelligence (AVI). This segment also includes the private machine-to-machine IoT data networks including Supervisory Control and Data Acquisition (SCADA) ~~and Software as a Service (SaaS) offerings including BlackTIE~~^® ~~encryption, weather monitoring~~provided primarily ~~in the North Sea (METOCEAN) and certain other value added services such as Adaptive Video Intelligence (AVI).~~for pipelines.

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. Additionally, Systems Integration provides complete monitoring and maintenance for fire and gas detection systems and PLC/automation control systems.

•

~~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~~Eliminations primarily represents unallocated ~~corporate office~~executive and support activities, including back-office software development, interest expense, income taxes and ~~eliminations.~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

eliminations, the GX Dispute and change in fair value of earn-out/contingent consideration.

The Company’s ~~business~~reportable segment information as of and for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, is presented below.


	Three Months Ended September 30, 2017													Three Months Ended March 31, 2020
	Managed Services		Applications and Internet-of- Things		Systems Integration			Corporate and Eliminations			Consolidated Total			Managed Communications Services			Applications and Internet-of- Things		Systems Integration		Corporate and Eliminations			Consolidated Total
	(in thousands)													(in thousands)
Revenue	$	40,243	$	4,985	$	5,616		$	—		$	50,844		$	39,896		$	8,743	$	10,122	$	-		$	58,761

Cost of revenue (excluding depreciation and amortization)		24,902		3,394		4,089			—			32,385			25,502			4,561		7,887		-			37,950
Depreciation and amortization		5,263		835		615			1,286			7,999			4,659			1,182		164		926			6,931
Impairment of goodwill															21,755			-		1,386		-			23,141
Selling, general and administrative		3,013		363		280			9,755			13,411			2,807			1,620		404		11,810			16,641

Operating income (loss)	$	7,065	$	393	$	632		$	(11,041	)	$	(2,951	)	$	(14,827	)	$	1,380	$	281	$	(12,736	)	$	(25,902	)

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			131,569			37,692		25,187		23,146			217,594
Capital expenditures		13,081		198		—			645			13,924			2,839			514		-		344			3,697

	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 March 31, 2019
	Managed Communications Services		Applications and Internet-of- Things		Systems Integration		Corporate and Eliminations			Consolidated Total
	(in thousands)
Revenue	$	42,333	$	8,015	$	7,162	$	-		$	57,510
Cost of revenue (excluding depreciation and amortization)		26,985		4,497		4,974		-			36,456
Depreciation and amortization		6,264		1,231		662		755			8,912
Selling, general and administrative		3,797		565		1,124		14,777			20,263
Operating income (loss)	$	5,287	$	1,722	$	402	$	(15,532	)	$	(8,121	)
Total assets		170,553		46,086		26,546		18,034			261,219
Capital expenditures		6,636		433		-		20			7,089

The following table presents revenue earned from the Company’s domestic and international operations for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016.~~2019. 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 the location of service information is properly reflected.


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2017		2016		2017		2016		2020		2019
	(in thousands)								(in thousands)
Domestic	$	17,136	$	11,555	$	46,110	$	43,783	$	23,275	$	24,627
International		33,708		39,057		101,968		124,081		35,486		32,883

Total	$	50,844	$	50,612	$	148,078	$	167,864	$	58,761	$	57,510

The following table presents goodwill, right-of-use lease assets and long-lived assets, net of accumulated depreciation, for the Company’s domestic and international operations as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016.~~2019.


	September 30,		December 31,		March 31,		December 31,
	2017		2016		2020		2019
	(in thousands)				(in thousands)
Domestic	$	70,309	$	27,682	$	69,794	$	76,253
International		62,049		70,101		41,498		67,631

Total	$	132,358	$	97,783	$	111,292	$	143,884

Note 12 – Related Party Transactions

The Company has a reseller arrangement with Darktrace, which is an artificial intelligence company in cybersecurity that is partially owned by KKR & CO. Inc. (KKR). KKR is a significant stockholder of the Company. Under the arrangement, the Company sells Darktrace’s cybersecurity audit services with the Company’s cybersecurity offerings. In the three months ended March 31, 2020, the Company purchased $0.1 million from Darktrace in the ordinary course of business. In the three months ended March 31, 2019, the Company purchased $0.1 million from Darktrace in the ordinary course of business.

Vissim AS is now a vendor following a competitive request for a quote from RigNet in the ordinary course of business. A customer specified Vissim AS by name as a provider for an SI project. Vissim AS is 24% owned by AVANT Venture Capital AS. AVANT Venture Capital is owned by and has as the chairman of its board one of our board members. In the three months ended March 31, 2020 and 2019, the Company purchased $0.1 million and none, respectively, from Vissim AS in the ordinary course of business.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 13 – Restructuring Costs – Cost Reduction Plans

During the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, the Company incurred a netpre-tax restructuring expense of ~~$0.8~~$0.6 million reported as general and administrative expense in the Corporate segment associated with the reduction of 3125 employees.

~~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.20

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 14 – ~~Executive Departure costs~~Subsequent Event

~~Marty Jimmerson, the Company’s former CFO, served as Interim CEO and President from January 7, 2016 to~~In May ~~31, 2016, to replace Mark Slaughter, the prior CEO and President. Mr. Jimmerson departed~~2020, the Company entered into a loan agreement (PPP Loan) with Bank of America, N.A., as lender, pursuant to the Paycheck Protection Program (PPP) of the U.S. Small Business Administration (SBA) established under the Coronavirus Aid, Relief, and Economic Security Act. Under the PPP Loan, the Company borrowed $6.8 million which the Company expects to be eligible for forgiveness pursuant to the applicable regulations of the PPP. Currently, the regulations provide for loan forgiveness to the extent that (i) the proceeds are used in the eight week period after funding of the loan, (ii) at least 75% of the forgiven amount is used for eligible payroll costs and (iii) the remaining proceeds are used for interest on ~~June 1, 2016. In connection~~mortgages, rents, or utilities, and interest on other debt obligations incurred before February 15, 2020.

The amount eligible for forgiveness may be reduced if, among other things, the Company reduces its full-time headcount or if the Company reduces salaries and wages beyond certain limits. While the Company expects all $6.8 million will be used in accordance with the ~~departure~~regulations for forgiveness, not all costs are within the control of ~~Mr. Slaughter, in the first quarter of 2016~~ the Company ~~incurred~~and these regulations are subject to change as a~~pre-tax~~ ~~executive departure expense~~ result of ~~$1.9~~administrative or judicial proceedings or legislative initiatives including additional regulations that are anticipated to be released by the SBA.

Any amounts not forgiven must be repaid in two years and accrue interest at a rate of 1.0% per year. No interest or principal payments are due for six months, at which time interest and principal payments will be made on any unforgiven balance under terms established by Bank of America, N.A. at that time. The SBA has publicly stated that it intends to review all loans in excess of $2.0 million inwhen loan forgiveness is requested. The SBA has not provided any further details of this review and the ~~Corporate segment. On May 31, 2016, Steven E. Pickett was named CEO and President~~Company cannot assure the results of ~~the Company.~~any such review.

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 30, 2017~~March 31, 2020 and for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019 included elsewhere herein, and with our ~~annual report~~Annual Report on Form10-K for the year ended December 31, ~~2016.~~2019 (our “Annual Report”). 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~~Annual Report and elsewhere in this ~~quarterly report.~~Quarterly Report on Form 10-Q. 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:

the effects of the COVID-19 pandemic and reduced demand for oil and gas;

~~new regulations, delays in~~

expected forgiveness of any loan obtained by the Company pursuant to the Paycheck Protection Program of the United States Small Business Administration;

the level of drilling ~~permits~~and production activity and the number of offshore drilling, FPSOs and other vessels that are removed from service, either temporarily or ~~other changes in the drilling industry;~~permanently;

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 and liquidity needs and expectations regarding cash flow from operations, capital expenditures, covenant compliance and ~~capital expenditures;~~borrowing availability under our Revolving Credit Facility;

our expectations regarding the deductibility of goodwill for tax purposes;

~~our ability to manage and grow~~ our business and ~~execute our business~~corporate development strategy, including ~~expanding our penetration of the U.S. and international onshore and offshore drilling rigs and expanding our business into remote communication market adjacencies;~~

~~our strategy and acquisitions;~~

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

the ~~GX dispute~~

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

•

our ability to manage and grow our business and execute our business strategy, including developing and marketing additional Apps & IoT solutions, expanding our market share, increasing secondary and tertiary customer penetration at remote sites, enhancing systems integration and extending our presence into complementary remote communication segments through organic growth and strategic acquisitions;

our ability to develop and market additional products and services;

our cost reduction, restructuring activities and related expenses;

the buildout and upgrade of our Gulf of Mexico microwave network; and

•

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

~~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~~Annual Report 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.

Additionally, the COVID-19 pandemic has had and continues to have a material adverse impact on the world economy and the oil and gas industry, the results of which may exacerbate any or all of the risk factors described in our Annual Report or herein. As both the spread of the virus as well as government and industry reactions thereto are occurring at a rapid pace, the ultimate effect of the virus on our business, financial condition and results of operations remains uncertain. 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~~leading provider of ultra-secure, intelligent networking solutions and cybersecurity solutions enhancing customer decision making and business performance. We provide solutions ranging from fully-managed voice and data networks to more advanced applications that include video conferencing, asset and weather monitoring, real-time data services and cybersecurity under a multi-service recurring revenue model.

specialized applications. 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 customers are primarily served under fixed-price contracts, either on~~ On top of and vertically integrated into these networks we provide services ranging from fully-managed voice, data, and video to more advanced services including: cyber security threat detection and prevention; applications to improve crew welfare, safety or workforce productivity; and 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 onereal-time AI-backed data analytics platform 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,enhance customer decision making and generally may be terminated early on short notice without penalty in the event of force majeure, breach of the MSA or cold stacking of a drilling rig (when a rig is taken out of service and is expected to be idle for a protracted period of time).business performance.

~~We previously operated our business under two reportable segments:~~ Managed Communications Services (MCS). Our MCS segment provides remote communications, telephony and ~~Systems Integration (previously called SI&A). During the third quarter of 2017, after we completed the ESS acquisition, we reorganized our business~~technology services for offshore and ~~reportable segments. Applications~~onshore drilling rigs and~~Internet-of-Things~~ ~~is now managed~~ production facilities, support vessels, and presented as a separate segment, and was previously presented in the Managed Services segment. 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.other remote sites.

•

~~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 and Internet-~~Internet-of-Things~~of-Things (Apps & IoT).Our Apps & IoT segment provides applicationsover-the-top of the ~~Managed~~network layer including Software as a Service (SaaS) offerings such as a real-time machine learning and AI data platform (Intelie Pipes and Intelie LIVE), Cyphre Encryption, Enhanced Cybersecurity Services (ECS), edge computing solution services that assist customers with collecting and standardizing the complex data produced by edge devices (LIVE-IT), applications for safety and workforce productivity such as weather monitoring primarily in the North Sea (MetOcean), and certain other value-added services such as Adaptive Video Intelligence (AVI). This segment also includes the private machine-to-machine IoT data networks including Supervisory Control and Data Acquisition (SCADA) ~~and Software as a Service (SaaS) offerings including BlackTIE~~^® ~~encryption, weather monitoring~~provided primarily ~~in the North Sea (METOCEAN) and certain other value added services such as Adaptive Video Intelligence (AVI).~~for pipelines.

•

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. Additionally, Systems Integration provides complete monitoring and maintenance for fire and gas detection systems and PLC/automation control systems.

Customers in our MCS and Apps & IoT segments 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. Offshore contracts generally have a term of up to five years with renewal options. Land-based contracts 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). Systems Integration customers are served primarily under fixed-price, long-term contracts.

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~~contracted 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 isare 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~~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 aan MCS 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~~third-party service providers.

Recent Developments

The COVID-19 pandemic combined with an oversupply in the oil markets has caused RigNet’s common stock to decline from $6.60 on December 31, 2019, to $1.18 on May 1, 2020. Under the rules of NASDAQ, if our common stock falls below $1 for 30 business days, NASDAQ can notify us of its intent to delist our stock. If we are notified of delisting, our stock must trade above $1 in any ten-day periods during the 180-day period commencing with the notice of delisting. Failure to achieve compliance could result in our stock being delisted. If our common stock was to be delisted for any reason, it could negatively impact RigNet by, among other things, reducing the liquidity and market price of our common stock, reducing the number of investors willing to hold or acquire our common stock and limiting our ability to issue securities to obtain financing in the future.

On ~~November 6, 2017,~~February 21, 2020, we entered into ~~our third amended~~the Third Amendment to the Third Amended and ~~restated~~Restated Credit Agreement (Credit Agreement), with the same four financial institutions that were part of the previous credit ~~agreement, which~~agreement. The Credit Agreement provides for a ~~$15.0~~$16.0 million ~~term loan facility~~Term Loan, a $100.0 million RCF and ~~an $85.0~~a $30.0 million ~~revolving credit facility that~~accordion feature. The Term Loan matures on ~~November 6,~~March 31, 2022 with principal installments of $2.0 million due quarterly beginning June 30, 2020. The RCF and accordion, if exercised, mature on August 31, 2022. The Consolidated Leverage Ratio is set at 3.25 times through third quarter 2020, ~~with~~thereafter stepping down to 3.0 times through second quarter 2021, thereafter stepping down to 2.75 times through the maturity of the revolving facility. The Credit Agreement bears interest ~~payable monthly~~ at a rate of LIBOR plus a margin ranging from 1.75% to ~~2.75%~~3.25% based on the Consolidated Leverage Ratio.

As of March 31, 2020, we have a ~~consolidated leverage ratio~~backlog for our percentage of completion projects of $22.4 million.

In May 2020, we entered into a loan agreement (PPP Loan) with Bank of America, N.A., as lender, pursuant to the Paycheck Protection Program (PPP) of the U.S. Small Business Administration (SBA) established under the Coronavirus Aid, Relief, and Economic Security Act. Under the PPP Loan, we borrowed $6.8 million which we expect to be eligible for forgiveness pursuant to the applicable regulations of the PPP. Currently, the regulations provide for loan forgiveness to the extent that (i) the proceeds are used in the eight week period after funding of the loan, (ii) at least 75% of the forgiven amount is used for eligible payroll costs and (iii) the remaining proceeds are used for interest on mortgages, rents, or utilities, and interest on other debt obligations incurred before February 15, 2020.

The amount eligible for forgiveness may be reduced if, among other things, we reduce our full-time headcount or we reduce salaries and wages beyond certain limits. While we expects all $6.8 million will be used in accordance with the regulations for forgiveness, not all costs are within our control and these regulations are subject to change as a result of administrative or judicial proceedings or legislative initiatives including additional regulations that are anticipated to be released by the SBA.

Any amounts not forgiven must be repaid in two years and accrue interest at a rate of 1.0% per year. No interest or principal payments are due for six months, at which time interest and principal payments will be made on any unforgiven balance under terms established by Bank of ~~$1.25~~America, N.A. at that time. The SBA has publicly stated that it intends to review all loans in excess of $2.0 million ~~due quarterly beginning March 31, 2018.~~when loan forgiveness is requested. The SBA has not provided any further details of this review and we cannot be assure the results of any such review.

~~During~~Known Trends and Uncertainties

Operating Matters

Starting in the ~~third~~first quarter of ~~2017,~~2020, we ~~incurred restructuring expense~~and our customers were adversely impacted by the COVID-19 pandemic. We and our customers have had to close certain offices and have certain employees work from home. Our customers have had certain of ~~$0.8 million associated~~their work sites for large projects closed and are operating certain sites with ~~the reduction of 31~~only essential employees.

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 Global economic activity and the oil and gas ~~industry.~~industry declined substantially in the first quarter of 2020. Travel to and from remote locations has been restricted and in some cases, suspended. The ~~assets acquired enhance our product offering, add~~global oil industry we serve has experienced reduced demand and furloughs as a result. Furthermore, in March 2020, the Saudi state oil producer, Saudi Aramco and Russia, along with the broader OPEC+ group, failed to ~~our existing midstream Supervisory Control~~reach an agreement to continue production cuts and ~~Data Acquisition (SCADA) customer portfolio,~~collectively launched a price war with the goal of attempting to recapture market share that OPEC+ had lost to U.S. share oil producers in recent years. Following the OPEC+ actions on price 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~~conjunction with significantly reduced demand as result of ~~Data Technology Solutions (DTS). DTS provides comprehensive communications and IT services~~COVID-19 pandemic, Brent crude prices have fallen 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 18, 2017, we completed our acquisition of Cyphre Security Solutions (Cyphre) for an estimated aggregate purchase price of $12.0 million. Of this aggregate purchase price, we paid $4.9 million in cash, $3.3 million in stock and expect to pay $3.8 million of contingent consideration for intellectual property, estimated$14.85 per barrel as of ~~the date~~March 31, 2020. WTI prices went below zero on April 20, 2020 as a result of ~~acquisition. The initial estimate of the contingent consideration for intellectual property is preliminary and remains subject to change~~US 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.~~

In January 2017, we signed and announced an eight-year lease for new headquarters space, comprised of 28,808 square feet located at 15115 Park Row Blvd, Suite 300, Houston, Texas. The term of this lease runs through June 2025.

~~Known Trends and Uncertainties~~

~~Operating Matters~~storage facilities reaching capacity.

Uncertainties in the oil and gas industry ~~may~~will continue to impact our profitability. The fundamentals of the oil and gas industry we serve are expected to remain challenged ~~into 2017, 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 since their 2016 lows, the2020. Many oil and gas ~~environment continues~~companies have already cut their capital expenditures budget significantly, reduced and/or furloughed their workforces, and delayed decisions on future projects or canceled them altogether. During 2020, we expect both onshore and offshore drilling activity to decline compared to both the previous year and the previous forecast. SI project decision-making is likely to slow and construction on existing projects maybe be suspended or delayed due to the impacts of COVID-19. Finally, while our Apps & IoT segment may also be impacted, we believe our products provide much-needed solutions that enable our customers to be ~~challenged~~more productive, efficient, safe, and financially competitive.

In response to this rapidly changing environment, RigNet has taken a proactive measure to reduce costs, including eliminating all travel that is not customer-facing, reducing professional fees, eliminating discretionary spending, and temporarily reducing compensation for our executives, our employees, and our board of directors. We are also working with ~~operators focusing on shorter term, land-based projects that generally require less capital investment. Generally, a prolonged lower oil price environment decreases exploration~~both customers and ~~development drilling investment, utilization~~suppliers to reduce our bandwidth costs as sites move from working to idle. However, our ability to significantly reduce our bandwidth commitments is limited given the nature of ~~drilling rigs and the activity~~our contracts with those providers. Finally, RigNet has also sought to take advantage 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~~certain government relief programs ~~and are expected to continue operating under reduced budgets~~available in the ~~current commodity price environment.~~

various jurisdictions in which we work. We cannot guarantee whether our efforts to secure government relief will be successful or provide meaningful relief.

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

   3rd Quarter    2nd Quarter    1st Quarter    4th Quarter    3rd Quarter
   2017    2017    2017    2016    2016
Selected Operational Data:

Offshore drilling rigs (1)
   184    173    173    175    194
Offshore Production
   316    296    290    280    287
Maritime
   165    134    124    122    128
International Land
   132    112    104    104    101
Other sites (2)
   378    336    304    240    238










Total
   1,175    1,051    995    921    948

~~(1)~~

~~Includes jack up, semi-submersible and drillship rigs~~

~~(2)~~

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

In addition, uncertainties that could impact our profitability include service responsiveness to remote locations, communication network complexities, political and economic instability in certain regions, cyber-attacks, export restrictions, licenses and other trade barriers. These uncertainties may result in the delay of service initiation, which may negatively impact our results of operations. Additional uncertainties that could impact our operating cash flows include the availability and cost of satellite bandwidth, timing of collecting our receivables, and our ability to increase our contracted services through sales and marketing efforts while leveraging the contracted satellite and other communication service costs. We believe these trends have made lenders more reluctant to provide financing to companies operating in and serving the oil and gas industry. We may be unable to access additional credit to fund ongoing operations.

Sales Tax Audit

We are undergoing a routine sales tax audit infrom a state where we have ~~operations for~~operations. The audit can cover up to a four-year period. We are in the ~~period from August~~early stages 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~~have any estimates of ~~the audit will result in a material impact to the consolidated financial statements.~~

~~Global Xpress (GX) Dispute~~

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

~~We have incurred legal expenses of $0.8 million in connection with the GX dispute~~further exposure, if any, for the nine months ended September 30, 2017. We may continue to incur significant legal fees, related expenses and management time in the future. We cannot predict the ultimate outcome of the GX dispute, the total costs to be incurred or the potential impact on personnel.

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

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 March 31,
	2017			2016			2017			2016			2020			2019
	(in thousands)												(in thousands)
Revenue	$	50,844		$	50,612		$	148,078		$	167,864		$	58,761		$	57,510

Expenses:
Cost of revenue (excluding depreciation and amortization)		32,385			29,860			95,298			99,412			37,950			36,456
Depreciation and amortization		7,999			8,305			22,867			25,561			6,931			8,912
Impairment of intangible assets		—			—			—			397
Impairment of goodwill														23,141			-
Selling and marketing		2,400			1,724			5,968			5,559			2,812			3,793
General and administrative		11,011			10,476			31,401			39,393			13,829			16,470

Total expenses		53,795			50,365			155,534			170,322			84,663			65,631

Operating income (loss)		(2,951	)		247			(7,456	)		(2,458	)
Operating loss														(25,902	)		(8,121	)
Other expense, net		(480	)		(1,155	)		(1,859	)		(2,437	)		(1,849	)		(1,166	)

Loss before income taxes		(3,431	)		(908	)		(9,315	)		(4,895	)		(27,751	)		(9,287	)
Income tax expense		(762	)		(540	)		(1,075	)		(2,676	)

Income tax benefit (expense)														980			(2,666	)
Net loss		(4,193	)		(1,448	)		(10,390	)		(7,571	)		(26,771	)		(11,953	)
Less: Net income attributable tonon-controlling interest		39			210			117			171			70			30

Net loss attributable to RigNet, Inc. stockholders	$	(4,232	)	$	(1,658	)	$	(10,507	)	$	(7,742	)	$	(26,841	)	$	(11,983	)

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		$	8,351		$	8,386

The following represents selected financial operating results for our segments:

												Three Months Ended March 31,
		Three Months Ended September 30,					Nine Months Ended September 30,					2020			2019
		2017		2016			2017		2016			(in thousands)
		(in thousands)
Managed Services:
Managed Communications Services:
Revenue		$	40,243	$	45,653		$	122,531	$	146,766		$	39,896		$	42,333
Cost of revenue (excluding depreciation and amortization)			24,902		26,253			75,798		85,455			25,502			26,985
Depreciation and amortization			5,263		6,716			17,509		20,032			4,659			6,264
Impairment of goodwill													21,755			-
Selling, general and administrative			3,013		5,235			12,435		20,631			2,807			3,797

Managed Services operating income		$	7,065	$	7,449		$	16,789	$	20,648

Managed Communication Services operating income (loss)												$	(14,827	)	$	5,287
Applications andInternet-of-Things:	Applications andInternet-of-Things:
Revenue		$	4,985	$	1,552		$	9,846	$	5,079		$	8,743		$	8,015
Cost of revenue (excluding depreciation and amortization)			3,394		696			6,844		2,176			4,561			4,497
Depreciation and amortization			835		—			849		—			1,182			1,231
Impairment of goodwill													-			-
Selling, general and administrative			363		67			1,149		201			1,620			565

Applications &Internet-of-Things operating income		$	393	$	789		$	1,004	$	2,702		$	1,380		$	1,722

Systems Integration:
Revenue		$	5,616	$	3,407		$	15,701	$	16,019		$	10,122		$	7,162
Cost of revenue (excluding depreciation and amortization)			4,089		2,911			12,656		11,781			7,887			4,974
Depreciation and amortization			615		631			1,813		2,127			164			662
Impairment of goodwill													1,386			-
Selling, general and administrative			280		499			1,179		2,141			404			1,124

Systems Integration and Automation operating income (loss)		$	632	$	(634	)	$	53	$	(30	)

Systems Integration and Automation operating income												$	281		$	402

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

Three Months Ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019

Revenue.Revenue increased by ~~$0.2~~$1.3 million, or ~~0.5%~~2.2%, to ~~$50.8~~$58.8 million for the three months ended ~~September 30, 2017~~March 31, 2020 from ~~$50.6~~$57.5 million for the three months ended ~~September 30, 2016. This increase was driven by increased revenues in~~March 31, 2019. Revenue for the ~~Apps & IoT and Systems Integration segments, partially offset by lower revenue in the Managed Services segment. The~~ Apps & IoT segment increased ~~$3.4~~$0.7 million, or ~~221.2%~~9.1%, due to our focus on the growth ~~strategy which focuses on growth into~~of the application layer and IoT ~~space including the acquisition of ESS, which contributed $1.3 million. The~~space. Systems Integration ~~segment~~revenue increased ~~$2.2~~by $3.0 million, or ~~64.8%~~41.3%, due to the timing of ~~Systems Integration~~certain projects. The ~~Managed Services segment decreased $5.4 million, or 11.9%, primarily due to decreased offshore drilling sites served and decreasedrevenue-per-site~~ ~~from offshore drilling rigs~~increase was partially offset by ~~$1.1~~a $2.4 million decrease in MCS segment revenue due to service and install which had substantial revenue in the prior year quarter from the ~~acquisition~~expansion of ~~DTS. The decrease~~the LTE network in the Gulf 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~~Mexico. ~~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~~$1.5 million, or ~~8.5%~~4.1%, to ~~$32.4~~$38.0 million for the three months ended ~~September 30, 2017~~March 31, 2020 from ~~$29.9~~$36.5 million for the three months ended ~~September 30, 2016. Cost of revenue increased~~March 31, 2019. This increase was due to progress on certain SI projects, partially offset by decreased activity in the Apps & IoT segment by $2.7 million as we invest in our strategy of expanding into the application layer and IoT space including the acquisition of ESS and Cyphre. Cost of revenue increased in the Systems Integration segment by $1.2 million due to the timing of Systems Integration projects.MCS segment. Cost of revenue (excluding depreciation and amortization) decreased in the ~~Managed Services~~MCS segment by ~~$1.4~~$1.5 million ~~primarily~~ due to ~~reductions~~reduction in ongoing ~~expenses partially offset~~expenses. Cost of revenue (excluding depreciation and amortization) increased in the Systems Integration segment by $2.9 million due to the ~~acquisition~~timing of ~~DTS.~~

System Integration projects. Cost of revenue (excluding depreciation and amortization) increased in the Apps & IoT segment by $0.1 million.

Depreciation and Amortization.Depreciation and amortization expense decreased by ~~$0.3~~$2.0 million to ~~$8.0~~$6.9 million for the three months ended ~~September 30, 2017~~March 31, 2020 from ~~$8.3~~$8.9 million for the three months ended ~~September 30, 2016.~~March 31, 2019. The decrease is primarily attributable to the intangibles from the July 2012 acquisition of Nessco being fully amortized coupled with lower ~~levels~~capital expenditures.

Impairment of ~~capital expenditures~~Goodwill. The combination of COVID-19 pandemic and unprecedent oil and gas prices impacted our internal forecast. As a result, we performed an interim goodwill impairment test and determined that two of our reporting units were in ~~recent years, partially offset by the recent acquisitions~~excess of ~~Cyphre, DTS~~their fair value which resulted in a goodwill impairment charge of $23.1 million. The charge fully impairs goodwill previously reported in MCS of $21.8 million and ~~ESS.~~Systems Integration of $1.4 million.

Selling and Marketing.Selling and marketing ~~expense increased $0.7~~expenses decreased $1.0 million to ~~$2.4~~$2.8 million for the three months ended ~~September 30, 2017~~March 31, 2020 from ~~$1.7~~$3.8 million for the three months ended ~~September 30, 2016. This increase was due to investing in our growth strategy.~~March 31, 2019.

General and Administrative.General and administrative expenses ~~increased~~decreased by ~~$0.5~~$2.6 million to ~~$11.0~~$13.8 million for the three months ended ~~September 30, 2017~~March 31, 2020 from ~~$10.5~~$16.5 million for the three months ended ~~September 30, 2016. General and administrative costs increased due to the acquisition of Cyphre and ESS and related acquisition costs in the Apps & IoT segment.~~March 31, 2019. General and administrative costs decreased ~~in the Managed Services and Systems Integration segments~~ due to ~~reductions in ongoing expenses partially offset by~~reduced stock based-compensation and legal cost attributable to settlement of the ~~acquisition of DTS.~~GX Dispute during 2019.

Income Tax Expense.Our effective income tax ~~rate was (22.2%)~~ rates were 3.5%and ~~(59.5%~~(28.7%) for the three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, 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 Ended September 30, 2017 and 2016~~

~~Revenue.~~Revenue decreased by $19.8 million, or 11.8%, to $148.1 million for the nine months ended September 30, 2017 from $167.9 million for the nine months ended September 30, 2016. This decrease was driven by lower revenues across the Managed Services and Systems Integration segments, partially offset by an increase in the Apps & IoT segment. The Managed Services segment decreased $24.2 million, or 16.5%, primarily due to decreased offshore drilling sites served and decreased~~revenue-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 decreased~~revenue-per-site~~ ~~from offshore drilling rigs is primarily due to decreased multi-tenancy ratios from operators on offshore drilling rigs. As rigs that we 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. The Systems Integration segment decreased $0.3 million, or 2.0%, due to the timing of Systems Integration projects. The Apps & IoT segment increased $4.8 million, or 93.9%, 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.

~~Cost of Revenue (excluding depreciation and amortization).~~Cost of revenue (excluding depreciation and amortization) decreased by $4.1 million, or 4.1%, to $95.3 million for the nine months ended September 30, 2017 from $99.4 million for the nine months ended September 30, 2016. 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 million due to the timing of Systems Integration projects. Cost of revenue increased in the Apps & IoT segment by $4.7 million as we invest in our strategy of expanding into the application layer and~~internet-of-things~~ ~~space including the acquisition of ESS and Cyphre.~~

~~Depreciation and Amortization.~~Depreciation and amortization expense decreased by $2.7 million to $22.9 million for the nine months ended September 30, 2017 from $25.6 million for the nine months ended September 30, 2016. The decrease is primarily attributable to lower levels of capital expenditures in recent years.

~~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 million to $6.0 million for the nine months ended September 30, 2017 from $5.6 million for the nine months ended September 30, 2016. This increase was due to investing in our growth strategy.

~~General and Administrative.~~General and administrative expenses decreased by $8.0 million to $31.4 million for the nine months ended September 30, 2017 from $39.4 million for the nine months ended September 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. General and administrative costs increased in the Apps & IoT segment due to the acquisition of Cyphre and ESS and related acquisition costs.

~~Income Tax Expense.~~Our effective income tax rate was (11.5%) and (54.7%) for the nine months ended September 30, 2017 and 2016, respectively. Our effective tax rate is affected by factors including changes in valuation allowances, fluctuations in income across jurisdictions with varying tax rates, and changes in income tax reserves, including related penalties and interest.

Liquidity and Capital Resources

At ~~September 30, 2017,~~March 31, 2020, we had working capital, including cash and cash equivalents, of ~~$44.8~~$34.3 million.

~~Based~~In April 2020, the Company drew an additional $3.0 million on ~~our current expectations, we believe our~~the RCF for 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.purposes.

During the next twelve months, we expect our principal sources of liquidity to be cash flows from operating activities, the PPP Loan, 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~~hand. We believe we have sufficient liquidity and capital resources to meet our current operating requirements and ~~expansion plans, we~~any growth plans. We may elect to pursue ~~additional~~ expansion opportunities within the next year, which could require additional financing, either equity or debt, ~~or equity.~~however, we acknowledge additional opportunity for borrowing will be limited. Additionally, during the COVID-19 pandemic and reduction of oil and gas activity, the company has cut spend including board, executive, and employee pay, professional fees, capital expenditures and other operating costs.

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~~Credit Agreement and additional financing activities we may pursue, which may include debt or equity offerings.


	Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2020			2019
	(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,							$	14,505		$	23,296
Net cash provided by operating activities		20,888			22,754			3,551			4,648
Net cash used in investing activities		(45,007	)		(16,886	)		(5,337	)		(4,748	)
Net cash used in financing activities		(1,052	)		(8,111	)
Net cash provided by (used in) financing activities								2,491			(3,086	)
Changes in foreign currency translation		919			(986	)		(33	)		91

Cash and cash equivalents, September 30,	$	32,900		$	57,239

Cash and cash equivalents including restricted cash, March 31,							$	15,177		$	20,201

Currently, the Norwegian ~~kroner~~Kroner, 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~~against foreign currency exchange risks, but evaluate financial risk on a regular basis and may utilize financial instruments in the future if deemed necessary. During the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016, 90.2%~~2019, 93.0% and ~~84.6%~~91.8% of our revenue was denominated in U.S. dollars, respectively.

Operating Activities

Net cash provided by operating activities was ~~$20.9~~$3.6 million for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 compared to ~~$22.8 million for the nine months ended September 30, 2016. The decrease in~~net cash provided by operating activities ~~during 2017~~ of ~~$1.9~~$4.6 million for the three months ended March 31, 2019. The decrease in cash from operating activities of $1.1 million was primarily due to ~~decreased operating activity.~~the timing of paying our accounts payable partially offset due to the timing of 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~~services, the ~~availability and~~ cost of satellite bandwidth ~~as well as~~and 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~~$5.3 million and ~~$16.9~~$4.7 million for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, 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~~three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016 includes~~2019 included $5.3 million and $4.8 million of capital expenditures, ~~of $13.2 million and $11.2 million,~~ respectively. ~~We expect capital expenditures for 2017 to continue to be low due to continued reduced levels of global offshore oil and gas drilling activity.~~

Financing Activities

Net cash provided by financing activities was $2.5 million for the three months ended March 31, 2020. Cash provided by financing activities for the three months ended March 31, 2020, included borrowings of $3.8 million partially offset by $0.6 million withheld to cover employee taxes on stock-based compensation and $0.5 million in financing fees related to the Credit Agreement.

Net cash used in financing activities was ~~$1.1 million and $8.1~~$3.1 million for the ~~nine~~three months ended ~~September 30, 2017 and 2016, respectively.~~March 31, 2019. Cash used in financing activities for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019, included ~~$16.7~~$1.3 million in principal payments on our long-term debt, ~~partially offset by draws of $15.0~~$1.4 million withheld to cover employee taxes on ~~our revolving credit facility. Cash used~~stock-based compensation and $0.3 million in financing ~~activities for~~fees related to the ~~nine months ended September 30, 2016 included $9.4 million in principal payments on our long-term debt.~~Credit Agreement.

Credit Agreement

As of September 30, 2017, the Company has a $60.0 million term loan (Term Loan) and a $75.0 million Revolving Credit Facility (RCF), which includes a $15 million sublimit for the issuance of standby letters of credit.

The ~~Term Loan bears an interest rate of LIBOR plus a margin ranging from 1.5% to 2.5%, based on a ratio of funded debt to Consolidated EBITDA, anon-GAAP~~ financial measure defined in the credit agreement. Interest is payable monthly along with quarterly principal installments of $2.1 million, with the balance due October 2018. The weighted average interest rate for the three months ended September 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. The Term Loan is secured by substantially all the assets of the Company. As of September 30, 2017, the outstanding principal balance of the Term Loan was $27.9 million.

The RCF matures in October 2018 with any outstanding borrowings then payable. Borrowings under the RCF carry an interest rate of LIBOR plus an applicable margin ranging from 1.5% to 2.5%, which varies as a function of the Company’s leverage ratio. As of September 30, 2017, $32.0 million in draws on the facility 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 credit agreement with the most significant changes being the definition of Consolidated EBITDA, the calculation of the fixed charge coverage ratio and the timing associated with delivery of financial statements and compliance certificates to the administrative agent.

In December 2016, we amended our credit agreement with the most significant changes being voluntarily reducing 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 payment of cash dividends. It also requires us to maintain certain financial covenants such as a funded debt to Consolidated EBITDA ratio of less than or equal to 2.5 to 1.0 and a fixed charge coverage ratio of not less than 1.25 to 1.0. At September 30, 2017, we believe we were in compliance with all covenants.

~~On November 6, 2017, we entered into our third amended and restated credit agreement, which~~Credit Agreement provides for a ~~$15.0~~$16.0 million ~~term loan facility~~Term Loan, a $100.0 million RCF and ~~an $85.0~~a $30.0 million ~~revolving credit facility that matures on November 6, 2020 with~~ accordion feature.

The Credit Agreement bears interest ~~payable monthly~~ at a rate of LIBOR plus a margin ranging from 1.75% to ~~2.75%~~3.25% based on the Company’s Consolidated Leverage Ratio. LIBOR is subject to cease to exist entirely after 2021. The Credit Agreement addresses this situation with a ~~consolidated leverage ratio and~~LIBOR successor rate, being one or more Secured Overnight Financing Rates (SOFR) or another alternate benchmark rate. The Credit Agreement also addresses the situation in which no LIBOR successor rate has been determined. Interest on the Credit Agreement is payable monthly with principal payments of ~~$1.25~~$2.0 million due quarterly beginning June 30, 2020. The weighted average interest rate for the three months ended March 31, ~~2018.~~2020 and 2019 were 4.4% and 5.2%, respectively, with an interest rate of 4.0% at March 31, 2020.

As of March 31, 2020, the outstanding principal amounts were $16.0 million for the Term Loan and, $95.4 million for the RCF. In April 2020, the Company drew an additional $3.0 million on the RCF for liquidity purposes.

The Company’s Credit Agreement contains certain covenants and restrictions, including restricting the payment of cash dividends under default, and maintaining certain financial covenants such as a Consolidated Leverage Ratio, of less than or equal to 3.25 through the third quarter of 2020. The Consolidated Leverage Ratio requirement then steps down to 3.00 through the second quarter of 2021 and then steps down to 2.75 for all remaining quarters. The Consolidated Fixed Charge Coverage ratio requirement is greater than or equal to 1.25 through the maturity of the Credit Agreement. If any default occurs related to these covenants that are not cured or waived, the unpaid principal and any accrued interest can be declared immediately due and payable. The facilities under the Credit Agreement are secured by substantially all the assets of the Company. We believe we have accurately calculated and reported our required debt covenant calculations for the March 31, 2020 reporting period and are in compliance with the required covenant ratios. As of March 31, 2020, the Consolidated Leverage Ratio was 3.00 and Consolidated Fixed Charge Coverage Ratio was 2.14.

Vendor Finance Agreement

As of March 31, 2020, the Company had a vendor financing agreement in place, with an outstanding balance of $2.8 million. The outstanding balance bears interest at a rate of 6% and has quarterly payments of $0.3 million of principal and interest through January 2023.

Off-Balance Sheet Arrangements

We do not engage in anyoff-balance sheet arrangements.

Non-GAAP Measure ~~Measures~~

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~~loss 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 (minus) interest ~~expense,~~expense; income tax expense (benefit); depreciation and ~~amortization,~~amortization; impairment of goodwill, intangibles, property, plant and ~~equipment,~~equipment; foreign exchange impact of intercompany financing ~~activities,~~activities; (gain) loss on ~~retirement~~sales of property, plant and equipment, net of retirements; stock-based compensation expense; restructuring charges; change in fair value of earn-outs and contingent ~~consideration, stock-based compensation, merger and acquisition costs,~~consideration; executive departure costs; acquisition costs; the GX Dispute; GX Dispute Phase II 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~~investor’s and analyst’s ~~presentations~~analyses 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.~~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;~~expense or principal payments on debt;

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 the foreign exchange impact of intercompany financing activities;

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

Adjusted EBITDA does not reflect the ~~stock based~~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 the change in fair value of earn-outs and contingent consideration, which may require settlement in cash in the future;

Adjusted EBITDA does not reflect executive departure costs;

Adjusted EBITDA does not reflect restructuring charges;

Adjusted EBITDA does not reflect the GX Dispute;

•

Adjusted EBITDA does not reflect the GX Dispute Phase II costs;

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 March 31,
	2017			2016			2017			2016			2020			2019
	(in thousands)												(in thousands)
Net loss	$	(4,193	)	$	(1,448	)	$	(10,390	)	$	(7,571	)	$	(26,771	)	$	(11,953	)
Interest expense		689			729			1,921			2,040			1,528			1,238
Depreciation and amortization		7,999			8,305			22,867			25,561			6,931			8,912
Impairment of intangible assets		—			—			—			397
Impairment of goodwill														23,141			-
(Gain) loss on sales of property, plant and equipment, net of retirements		5			(14	)		55			(164	)		282			(7	)
Stock-based compensation		1,007			866			2,949			2,708			3,854			4,458
Restructuring		767			835			767			1,332			-			573
Change in fair value ofearn-out/contingent consideration		—			(1,279	)		(846	)		(1,279	)
Executive departure costs		—			—			—			1,884			298			-
Acquisition costs		807			—			2,723			240			68			350
Income tax expense		762			540			1,075			2,676

GX dispute Phase II costs														-			2,149
Income tax expense (benefit)														(980	)		2,666
Adjusted EBITDA(non-GAAP measure)	$	7,843		$	8,534		$	21,121		$	27,824		$	8,351		$	8,386

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~~assess purchasing synergies.

Adjusted EBITDA ~~decreased by $0.7 million to $7.8~~was $8.4 million for the three months ended ~~September 30, 2017, from $8.5~~March 31, 2020, and $8.4 million for the three months ended September 30, 2016. The decrease resulted primarily from increased costs partially offset by increased revenue. Adjusted EBITDA decreased by $6.7 million to $21.1 million for the nine months ended September 30, 2017, from $27.8 million for the nine months ended September 30, 2016. The decrease resulted primarily from lower revenue partially offset by a reduction in ongoing operating expenses.March 31, 2019.

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.31

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

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

Our objective in managing our exposure to foreign currency exchange rate fluctuations is to reduce the impact of adverse fluctuations in earnings and cash flows associated with foreign currency exchange rates. We presently do not hedge these risks, but evaluate financial risk on a regular basis and may utilize financial instruments in the future if deemed necessary. During the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016, 9.8%~~2019, 7.0% and ~~15.4%~~8.2%, respectively, of our revenues were earned innon-U.S. currencies. At ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, 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 a net loss attributable to us and our total stockholders’ equity based on our outstanding long-term debt ~~on September 30, 2017~~at March 31, 2020 and December 31, ~~2016,~~2019, assuming those liabilities were outstanding for the previous twelve months:


	September 30,		December 31,
	2017		2016		March 31,		December 31,
	(in thousands)				2020		2019
Effect on Net Income (Loss) and Equity - Increase/Decrease:					(in thousands)
1% Decrease/increase in rate	$	600	$	615	$	1,138	$	1,077
2% Decrease/increase in rate	$	1,200	$	1,229	$	2,277	$	2,155
3% Decrease/increase in rate	$	1,800	$	1,844	$	3,415	$	3,232

Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer), evaluated the effectiveness of our disclosure controls and procedures as of ~~September 30, 2017.~~March 31, 2020. The term “disclosure controls and procedures,” as defined in Rules13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended (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~~company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on the evaluation of our disclosure controls and procedures as of ~~September 30, 2017,~~March 31, 2020, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

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 30, 2017~~March 31, 2020 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 of all consolidated entities.

PART II – ~~OTHER~~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. The Company is seeking repayment of certain severance benefits and injunctive relief. The Company has incurred legal expense of approximately $0.3 million in connection with this dispute for the nine months ended September 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.

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

The Company has incurred legal expenses of $0.8 million in connection with the GX dispute for the nine months ended September 30, 2017. The Company may continue to incur significant legal fees, related expenses and management time in the future. The Company cannot predict the ultimate outcome of the GX dispute, the total costs to be incurred or the potential impact on personnel.

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~~Reference is made to Part I, Item 1A. ~~Risk~~“Risk Factors” ofincluded in our Annual Report ~~on Form10-K~~for the ~~year ended December 31, 2016.~~information concerning risk factors. In addition to the risk factor discussed below, the impact of the COVID-19 pandemic may also exacerbate other risks discussed in Item 1A. Risk Factors in our Annual Report, any of which could have a material adverse effect on us.

The COVID-19 pandemic has significantly reduced demand for our services, and has had, and may continue to have, a material adverse impact on our financial condition, results of operations and cash flows.

The effects of the COVID-19 pandemic, including actions taken by businesses and governments, have resulted in a significant and swift reduction in international and U.S. economic activity. These effects have adversely affected the demand for oil and natural gas, as well as for our services. The collapse in demand for oil caused by this unprecedented global health and economic crisis, coupled with oil oversupply, has had and is reasonably likely to continue to have, a material adverse impact on the demand for our services. The decline in our customers’ demand for our services has had and is likely to continue to have, a material adverse impact on our financial condition, results of operations and cash flows.

While the full impact of the COVID-19 outbreak is not yet known, we are closely monitoring the effects of the pandemic on commodity demands and on our customers, as well as on our operations and employees. These effects have included and may continue to include adverse revenue, net income and Adjusted EBITDA effects.; disruptions to our operations; customer shutdowns of oil and gas exploration and production; employee impacts from illness, school closures and other community response measures; and temporary closures of our facilities and the facilities of our customers and suppliers.

The extent to which our operating and financial results are affected by COVID-19 will depend on various factors and consequences beyond our control, such as the duration and scope of the pandemic; additional actions by businesses and governments in response to the pandemic; and the speed and effectiveness of responses to combat the virus. COVID-19 may also materially adversely affect our operating and financial results in a manner that is not currently known to us or that we do not currently consider to present significant risks to our operations.

Recently, we have experienced increased cancellations of platform space agreements which are having a material adverse effect on our Gulf of Mexico infrastructure.

We enter License of Platform Space (LOPS) agreements with operators of platforms in the Gulf of Mexico to place equipment necessary for our WiMax, microwave and LTE networks in the Gulf of Mexico. These agreements allow the operator to cancel the agreement with short notice periods if the operator intends to decommission or abandon the platform. The downturn in demand for oil and gas triggered by the COVID-19 outbreak has led to a high number of notifications of cancelations of our LOPS agreements. When a LOPS agreements is cancelled, we have to relocate equipment to another platform in order to maintain our network infrastructure. These moves increase our costs and may have a material adverse effect on our financial results. In addition, we cannot guarantee that alternative platform space is available for all required network moves resulting from cancellation of LOPS agreements. Failure to secure alternative space could result in gaps in our network coverage or degraded network performance and could have a material adverse effect on our financial condition, results of operations and cash flows.

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

~~None~~None.

Item 3.Defaults Upon Senior Securities

~~None~~None.

Item 4.Mine Safety Disclosures

Not applicable.

Item 5.Other Information

~~None~~Not applicable.

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

2.1
~~INDEX TO EXHIBITS~~

~~2.2~~		Share Purchase and Sale Agreement and Other Pacts between RigNet, Inc. and the shareholders of ~~Orgtec S.A.P.I. de C.V., d.b.a. TECNOR~~Intelie Solucoes Em Informatica S.A. dated ~~November 3, 2015~~January 15, 2018 (filed as Exhibit ~~2.2~~2.1 to the Registrant’s ~~Quarterly~~Current Report on Form~~10-Q~~ 8-K filed with the SEC on ~~May 9, 2016,~~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)
10.1
~~3.4~~		Third Amendment and Joinder to ~~the Amended and Restated Bylaws of RigNet, Inc., effective May 18, 2016 (filed as Exhibit 3.1 to the Registrant’s Current Report on Form8-K~~ ~~filed with the SEC on May 24, 2016, and incorporated herein by reference)~~

~~10.1+~~		Consulting Services Agreement between the Registrant and William Sutton dated July 13, 2017 (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~~		Third Amended and Restated Credit Agreement, dated as of ~~November 6, 2017~~February 21, 2020, among RigNet, Inc., as Borrower, the Subsidiaries of RigNet, Inc. party thereto as Guarantors, Bank of America, N.A., as Administrative Agent, Swingline Lender and L/C Issuer, ~~Compass Bank, as Syndication Agent,~~and the Lenders party thereto (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 24, 2020, and ~~Merrill Lynch, Pierce, Fenner & Smith Incorporated as Sole Lead Arranger and Sole Bookrunner.~~incorporated herein by reference)
10.2		Promissory Note dated as of May 1, 2020, issued by RigNet, Inc. to Bank of America, N.A., in the initial principal amount of $6,787,492.00
~~31.1~~
31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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

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

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

101.INS		XBRL Instance Document

101.SCH		XBRL Schema Document

101.CAL		XBRL Calculation Linkbase Document

101.LAB		XBRL Label Linkbase Document

101.PRE		XBRL Presentation Linkbase Document

101.DEF		XBRL Definition Linkbase Document

+	Indicates management contract or compensatory plan.

~~SIGNATURES~~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.

3836

RIGNET, INC.

~~RIGNET, INC.~~

Date: May 11, 2020

~~Date: November 6, 2017~~

/s/ ~~CHARLES E. SCHNEIDER~~LEE M. AHLSTROM

~~Charles E. Schneider~~
Lee M. Ahlstrom

Senior Vice President and Chief Financial Officer
(Principal Financial ~~and Accounting~~ Officer)