UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-Q

(Mark One)

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

For the quarterly period ended June 30, ~~2018~~2019

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

For the transition period from to

Commission file number001-35003

RigNet, Inc.

(Exact name of registrant as specified in its charter)


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

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

(281) 674-0100

Registrant’s telephone number, including area code

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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule12b-2 of the Exchange Act.


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 July 31, ~~2018,~~2019, there were outstanding ~~19,359,863~~19,968,783 shares of the registrant’s Common Stock.

TABLE OF CONTENTS


		Page
	PART I – FINANCIAL INFORMATION

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

Item 21	Condensed Consolidated Financial Statements (Unaudited)		5

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		24

Item 3	Quantitative and Qualitative Disclosures about Market Risk		33

Item 4	Controls and Procedures		34

~~Item 4~~	PART II – OTHER INFORMATION

Item 1	~~Controls and Procedures~~Legal Proceedings		35

Item 1A	~~PART II – OTHER INFORMATION~~Risk Factors

~~Item 1~~	~~Legal Proceedings~~		3635

Item 1A 2	~~Risk Factors~~		36

~~Item 2~~	Unregistered Sales of Equity Securities and Use of Proceeds		3635

Item 3	Defaults Upon Senior Securities		3635

Item 4	Mine Safety Disclosures		3635

Item 5	Other Information		3635

Item 6	Exhibits		3635

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.


Adjusted EBITDA		Anon-GAAP measure. Net income (loss) plus 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, acquisition costs, executive departure costs, restructuring charges, the GX dispute, the GX dispute Phase II costs andnon-recurring items. A reconciliation of Adjusted EBITDA to Net Income can be found in Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

AI		Artificial Intelligence

Apps		Software Applications

ASC		Accounting Standards Codification

ASU		Accounting Standards Update

Auto-Comm		Automation Communications Engineering Corp., acquired in 2018, provides additional Systems Integration solutions

AVI		Adaptive Video Intelligence

BOP		Blow-out preventer

BGAN		Broadband Global Access Networks

CIEB		Costs and estimated earnings in excess of billings on uncompleted contracts

Cyphre^®		Cyphre Security Solutions, acquired in 2017, provides cybersecurity solutions with advanced enterprise data protection

DTS		Data Technology Solutions, acquired in 2017, increases solutions offerings in managed communications, IT, and disaster relief

ECS		Enhanced Cyber Security

EDS		Emergency disconnect sequence

EPC		Engineering, Procurement and Construction

ESS		Energy Satellite Services, acquired in 2017, increases solutions offerings in SCADA and IoT

Exchange Act		United States Securities Exchange Act of 1934, as Amended

FASB		Financial Accounting Standards Board

FCC		Federal Communications Commission

GAAP		Generally Accepted Accounting Principles in the United States

GX		Inmarsat plc’s Global Express satellite bandwidth service

HTS		High Throughput Satellite, providing greater bandwidth than traditional satellites

Intelie		Intelie soluções em Informática SA, acquired in 2018, provides machine learning and real-time predictive analytics

IoT		Internet-of-Things

IP		Internet Protocol

KPI		Key performance indicators

LIBOR		London Interbank Offered Rate

LoRA		Long Range Access

LOS		Line-of-Sight microwave transmission

MCS		Managed Communications Services

MPLS		Multiprotocol Label Switching

NASDAQ		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		Network Operations Center

NPT		Non-productive time

OPEC		Organization of Petroleum Exporting Countries

OTT		Software, IoT and other advanced solutions deliveredOver-the-Top of the network layer

PUC		Public Utility Commission

ROP		Rate of penetration

SaaS		Software as a Service

SAB		Staff Accounting Bulletin

SAFCON		Safety Controls, Inc., acquired in 2018, provides additional safety, security, and maintenance service solutions for the oil and gas industry

Satellite bandwidth – Ka band		Bandwidth typically operating in a frequency range of 27 – 40 gigahertz

Satellite bandwidth – Ku band		Bandwidth typically operating in a frequency range of 12 – 18 gigahertz

Satellite bandwidth – C band		Bandwidth typically operating in a frequency range of 4 – 8 gigahertz

Satellite bandwidth – L band		Bandwidth typically operating in a frequency range of 1 – 2 gigahertz

SCADA		Supervisory Control and Data Acquisition

SEC		United States Securities and Exchange Commission

SI		Systems Integration

SOC		Security Operations Center

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

VMS		Video Management System

VSAT		Very Small Aperture Terminal satellite receivers

WiMax		Worldwide Interoperability for Microwave Access wireless broadband communication standard

PART I – FINANCIAL INFORMATION

Item 1.Condensed Consolidated Financial Statements

RIGNET, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	June 30, 2018			December 31, 2017				June 30, 2019			December 31, 2018
	(in thousands, except share amounts)							(in thousands, except share amounts)
ASSETS							ASSETS
Current assets:
Cash and cash equivalents	$	18,366		$	34,598			$	10,879		$	21,711
Restricted cash		42			43				41			41
Accounts receivable, net		64,850			49,021				67,863			67,450
Costs and estimated earnings in excess of billings on uncompleted contracts		3,719			2,393
Costs and estimated earnings in excess of billings on uncompleted contracts (CIEB)									8,739			7,138
Prepaid expenses and other current assets		7,053			5,591				7,197			6,767

Total current assets		94,030			91,646				94,719			103,107
Property, plant and equipment, net		61,148			60,344				63,247			63,585
Restricted cash		1,546			1,500				1,522			1,544
Goodwill		48,479			37,088				46,670			46,631
Intangibles, net		38,882			30,405				29,522			33,733
Right-of-use lease asset									3,899			—
Deferred tax and other assets		8,768			9,111				4,794			10,325

TOTAL ASSETS	$	252,853		$	230,094			$	244,373		$	258,925

LIABILITIES AND EQUITY							LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	17,298		$	12,234			$	27,916		$	20,568
Accrued expenses		14,737			16,089				15,802			16,374
Current maturities of long-term debt		4,949			4,941				10,783			4,942
Income taxes payable		908			1,601				1,369			2,431
GX dispute accrual									5,000			50,765
Deferred revenue and other current liabilities		15,743			8,511				10,079			5,863

Total current liabilities		53,635			43,376				70,949			100,943
Long-term debt		53,195			53,173				100,274			72,085
Deferred revenue		417			546				250			318
Deferred tax liability		3,990			189				678			652
Right-of-use lease liability – long-term portion									4,842			—
Other liabilities		31,515			25,533				22,048			28,943

Total liabilities		142,752			122,817				199,041			202,941

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 June 30, 2018 or December 31, 2017		—			—
Common stock - $0.001 par value; 191,000,000 shares authorized; 19,359,863 and 18,232,872 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively		19			18
Treasury stock - 89,880 and 5,516 shares at June 30, 2018 and December 31, 2017, respectively, at cost		(1,246	)		(116	)
Preferred stock – $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding at June 30, 2019 or December 31, 2018									—			—
Common stock – $0.001 par value; 190,000,000 shares authorized; 19,968,783 and 19,464,847 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively									20			19
Treasury stock – 200,980 and 91,567 shares at June 30, 2019 and December 31, 2018, respectively, at cost									(2,676	)		(1,270	)
Additionalpaid-in capital		170,603			155,829				181,577			172,946
Accumulated deficit		(43,949	)		(33,726	)			(114,656	)		(96,517	)
Accumulated other comprehensive loss		(15,398	)		(14,806	)			(18,918	)		(19,254	)

Total stockholders’ equity		110,029			107,199				45,347			55,924
Non-redeemable,non-controlling interest		72			78				(15	)		60

Total equity		110,101			107,277				45,332			55,984

TOTAL LIABILITIES AND EQUITY	$	252,853		$	230,094			$	244,373		$	258,925

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 June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
	(in thousands, except per share amounts)												(in thousands, except per share amounts)
Revenue	$	60,007		$	49,162		$	113,840		$	97,234		$	60,332		$	60,007		$	117,842		$	113,840

Expenses:
Cost of revenue (excluding depreciation and amortization)		36,246			33,038			69,927			62,913			36,519			36,246			72,975			69,927
Depreciation and amortization		8,356			7,552			16,343			14,868			7,679			8,356			16,591			16,343

Change in fair value ofearn-out/contingent consideration														1,284			2,778			1,284			2,800
Selling and marketing		4,189			2,132			7,138			3,568			2,952			4,189			6,745			7,138
General and administrative		15,546			9,878			29,232			20,390			14,458			12,768			30,928			26,432

Total expenses		64,337			52,600			122,640			101,739			62,892			64,337			128,523			122,640

Operating loss		(4,330	)		(3,438	)		(8,800	)		(4,505	)		(2,560	)		(4,330	)		(10,681	)		(8,800	)
Other income (expense):
Interest expense		(1,007	)		(613	)		(1,966	)		(1,232	)		(1,269	)		(1,007	)		(2,507	)		(1,966	)
Other income (expense), net		112			(260	)		618			(147	)		(93	)		112			(21	)		618

Loss before income taxes		(5,225	)		(4,311	)		(10,148	)		(5,884	)		(3,922	)		(5,225	)		(13,209	)		(10,148	)
Income tax benefit (expense)		926			101			323			(313	)		(2,204	)		926			(4,870	)		323

Net loss		(4,299	)		(4,210	)		(9,825	)		(6,197	)		(6,126	)		(4,299	)		(18,079	)		(9,825	)
Less: Net income attributable tonon-redeemable,non-controlling interest		30			39			60			78			30			30			60			60

Net loss attributable to RigNet, Inc. stockholders	$	(4,329	)	$	(4,249	)	$	(9,885	)	$	(6,275	)	$	(6,156	)	$	(4,329	)	$	(18,139	)	$	(9,885	)

COMPREHENSIVE LOSS
Net loss	$	(4,299	)	$	(4,210	)	$	(9,825	)	$	(6,197	)	$	(6,126	)	$	(4,299	)	$	(18,079	)	$	(9,825	)
Foreign currency translation		(2,192	)		905			(592	)		1,766			178			(2,192	)		336			(592	)

Comprehensive loss		(6,491	)		(3,305	)		(10,417	)		(4,431	)		(5,948	)		(6,491	)		(17,743	)		(10,417	)
Less: Comprehensive income (loss) attributable tonon-controlling interest		30			39			60			78
Less: Comprehensive income attributable tonon-controlling interest														30			30			60			60

Comprehensive loss attributable to RigNet, Inc. stockholders	$	(6,521	)	$	(3,344	)	$	(10,477	)	$	(4,509	)	$	(5,978	)	$	(6,521	)	$	(17,803	)	$	(10,477	)

LOSS PER SHARE - BASIC AND DILUTED
LOSS PER SHARE – BASIC AND DILUTED
Net loss attributable to RigNet, Inc. common stockholders	$	(4,329	)	$	(4,249	)	$	(9,885	)	$	(6,275	)	$	(6,156	)	$	(4,329	)	$	(18,139	)	$	(9,885	)

Net loss per share attributable to RigNet, Inc. common stockholders, basic	$	(0.23	)	$	(0.24	)	$	(0.54	)	$	(0.35	)	$	(0.32	)	$	(0.23	)	$	(0.95	)	$	(0.54	)

Net loss per share attributable to RigNet, Inc. common stockholders, diluted	$	(0.23	)	$	(0.24	)	$	(0.54	)	$	(0.35	)	$	(0.32	)	$	(0.23	)	$	(0.95	)	$	(0.54	)

Weighted average shares outstanding, basic		18,639			17,985			18,394			17,929			19,082			18,639			19,016			18,394

Weighted average shares outstanding, diluted		18,639			17,985			18,394			17,929			19,082			18,639			19,016			18,394

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

RIGNET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended June 30,							Six Months Ended June 30,
	2018			2017				2019			2018
	(in thousands)							(in thousands)
Cash flows from operating activities:
Net loss	$	(9,825	)	$	(6,197	)		$	(18,079	)	$	(9,825	)
Adjustments to reconcile net loss to net cash provided by operations:
Depreciation and amortization		16,343			14,868				16,591			16,343
Stock-based compensation		3,282			1,942				5,628			3,282
Amortization of deferred financing costs		102			151				153			102
Deferred taxes		66			74				4,838			66
Change in fair value ofearn-out/contingent consideration		2,800			(846	)			1,284			2,800
Accretion of discount of contingent consideration payable for acquisitions		287			272				183			287
(Gain) loss on sales of property, plant and equipment, net of retirements		(32	)		50				11			(32	)
Changes in operating assets and liabilities, net of effect of acquisition:
Accounts receivable		(12,458	)		1,777
Costs and estimated earnings in excess of billings on uncompleted contracts		(430	)		(894	)
Accounts receivable, net									(488	)		(12,458	)
Costs and estimated earnings in excess of billings on uncompleted contracts (CIEB)									(1,644	)		(430	)
Prepaid expenses and other assets		(2,157	)		909				(6	)		(2,157	)
Accounts payable		4,140			(24	)			7,564			4,140
Accrued expenses		(2,948	)		(1,034	)			(1,574	)		(2,948	)
Deferred revenue and other assets		4,134			5,325
GX Dispute payment									(45,000	)		—
Deferred revenue									1,334			4,134
Other liabilities		(1,975	)		(7,090	)			(2,052	)		(1,975	)

Net cash provided by operating activities		1,329			9,283
Net cash provided by (used in) operating activities									(31,257	)		1,329

Cash flows from investing activities:
Acquisitions (net of cash acquired)		(5,082	)		(4,900	)			—			(5,082	)
Capital expenditures		(12,701	)		(6,522	)			(11,868	)		(12,701	)
Proceeds from sales of property, plant and equipment		170			247				112			170

Net cash used in investing activities		(17,613	)		(11,175	)			(11,756	)		(17,613	)

Cash flows from financing activities:
Proceeds from issuance of common stock net of stock witheld to cover employee taxes on stock-based compensation		57			799
Issuance of common stock upon the exercise of stock options and the vesting of restricted stock									4			57
Stock withheld to cover employee taxes on stock-based compensation		(1,130	)		(116	)			(1,406	)		(1,130	)
Subsidiary distributions tonon-controlling interest		(66	)		(25	)			(135	)		(66	)
Proceeds from borrowings		2,500			—				40,000			2,500
Repayments of long-term debt		(2,572	)		(14,503	)			(6,083	)		(2,572	)
Payment of financing fees									(486	)		—

Net cash used in financing activities		(1,211	)		(13,845	)
Net cash provided by (used in) financing activities									31,894			(1,211	)

Net change in cash and cash equivalents		(17,495	)		(15,737	)			(11,119	)		(17,495	)

Cash and cash equivalents including restricted cash:							Cash and cash equivalents including restricted cash:
Balance, January 1,		36,141			58,805				23,296			36,141
Changes in foreign currency translation		1,308			1,172				265			1,308

Balance, June 30,	$	19,954		$	44,240			$	12,442		$	19,954

Supplemental disclosures:							Supplemental disclosures:
Income taxes paid	$	2,262		$	1,103			$	3,371		$	2,262
Interest paid	$	1,419		$	873			$	2,075		$	1,419
Non-cash investing - capital expenditures accrued	$	2,180		$	3,595
Non-cash investing - tenant improvement allowance	$	—		$	1,728
Non-cash investing - contingent consideration for acquisitions	$	7,600		$	3,798
Non-cash investing and financing - stock for acquisitions	$	11,436		$	3,304
Property, plant and equipment acquired under capital leases								$	446		$	—
Non-cash investing – capital expenditures accrued								$	1,917		$	2,180
Non-cash investing and financing – issuance of common stock for the Intelieearn-out								$	3,000		$	—
Non-cash investing – contingent consideration for acquisitions								$	—		$	7,600
Non-cash investing and financing – stock for acquisitions								$	—		$	11,436
Liabilities assumed in acquisitions	$	5,513		$	100			$	—		$	5,513

	June 30, 2018			December 31, 2017				June 30, 2019			June 30, 2018
Cash and cash equivalents	$	18,366		$	34,598			$	10,879		$	18,366
Restricted cash - current portion		42			43
Restricted cash - long-term portion		1,546			1,500
Restricted cash – current portion									41			42
Restricted cash – long-term portion									1,522			1,546

Cash and cash equivalents including restricted cash	$	19,954		$	36,141			$	12,442		$	19,954

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

RIGNET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)


	Common Stock					Treasury Stock					Additional Paid-In		Accumulated			Accumulated Other Comprehensive			Total Stockholders’			Non-Redeemable, Non-Controlling			Total Equity			Common Stock					Treasury Stock					Additional Paid-In Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity			Non-Redeemable, Non-Controlling Interest			Total Equity
	Shares			Amount		Shares		Amount			Capital		Deficit			Loss			Equity			Interest			Total Equity			Shares			Amount		Shares		Amount			Additional Paid-In Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity			Non-Redeemable, Non-Controlling Interest			Total Equity
													(in thousands)															(dollars and shares in thousands)
Balance, January 1, 2017		17,933		$	18		—	$	—		$	147,906	$	(17,550	)	$	(17,971	)	$	112,403		$	175		$	112,578
Balance, March 31, 2018																													19,104		$	19		80	$	(1,096	)	$	165,625	$	(39,620	)	$	(13,206	)	$	111,722		$	42		$	111,764
Issuance of common stock upon the exercise of stock options		57			—		—		—			799		—			—			799			—			799			7			—		—		—			45		—			—			45			—			45
Issuance of common stock upon the vesting of Restricted Stock Units, net of share cancellations		49			—		—		—			—		—			—			—			—			—			(10	)		—		—		—			—		—			—			—			—
Issuance of common stock upon the acquisition of Cyphre		192			—		—		—			3,304		—			—			3,304			—			3,304
Stock withheld to cover employee taxes on stock-based compensation		(6	)		—		6		(116	)		—		—			—			(116	)		—			(116	)
Stock-based compensation		—			—		—		—			1,942		—			—			1,942			—			1,942
Foreign currency translation		—			—		—		—			—		—			1,766			1,766			—			1,766
Non-controlling owner distributions		—			—		—		—			—		—			—			—			(25	)		(25	)
Net income (loss)		—			—		—		—			—		(6,275	)		—			(6,275	)		78			(6,197	)

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

Balance, January 1, 2018		18,233		$	18		6	$	(116	)	$	155,829	$	(33,726	)	$	(14,806	)	$	107,199		$	78		$	107,277
Issuance of common stock upon the exercise of stock options		8			—		—		—			57		—			—			57			—			57
Issuance of common stock upon the vesting of Restricted Stock Units, net of share cancellations		330			—		—		—			—		—			—			—			—			—
Issuance of common stock for acquisitions		789			1		—		—			11,435		—			—			11,436			—			11,436
Issuance of common stock upon the acquisition of Intelie																													259			—		—		—			4,096		—			—			4,096			—			4,096
Stock withheld to cover employee taxes on stock-based compensation		—			—		84		(1,130	)		—		—			—			(1,130	)		—			(1,130	)		—			—		10		(150	)		—		—			—			(150	)		—			(150	)
Stock-based compensation		—			—		—		—			3,282		—			—			3,282			—			3,282			—			—		—		—			837		—			—			837			—			837
Cumulative effect adjustment from implementation of ASU2016-16		—			—		—		—			—		(338	)		—			(338	)					(338	)		—			—		—		—			—		—			—			—			—
Foreign currency translation		—			—		—		—			—		—			(592	)		(592	)		—			(592	)		—			—		—		—			—		—			(2,192	)		(2,192	)		—			(2,192	)
Non-controlling owner distributions		—			—		—		—			—		—			—			—			(66	)		(66	)		—			—		—		—			—		—			—			—			—
Net income (loss)		—			—		—		—			—		(9,885	)		—			(9,885	)		60			(9,825	)		—			—		—		—			—		(4,329	)		—			(4,329	)		30			(4,299	)

Balance, June 30, 2018		19,360		$	19		90	$	(1,246	)	$	170,603	$	(43,949	)	$	(15,398	)	$	110,029		$	72		$	110,101			19,360		$	19		90	$	(1,246	)	$	170,603	$	(43,949	)	$	(15,398	)	$	110,029		$	72		$	110,101

Balance, March 31, 2019																													19,711		$	20		198	$	(2,677	)	$	177,404	$	(108,500	)	$	(19,096	)	$	47,151		$	(45	)	$	47,106
Issuance of common stock upon the exercise of stock options																													1			—		—		—			3		—			—			3			—			3
Issuance of common stock upon the vesting of Restricted Stock Units, net of share cancellations																													49			—		—		—			—		—			—			—			—
Issuance of common stock upon the Intelie earn-out																													208			—		—		—			3,000		—			—			3,000			—			3,000
Stock withheld to cover employee taxes on stock-based compensation																													—			—		3		1			—		—			—			1			—			1
Stock-based compensation																													—			—		—		—			1,170		—			—			1,170			—			1,170
Foreign currency translation																													—			—		—		—			—		—			178			178			—			178
Non-controlling owner distributions																													—			—		—		—			—		—			—			—			—
Net income (loss)																													—			—		—		—			—		(6,156	)		—			(6,156	)		30			(6,126	)

Balance, June 30, 2019																													19,969		$	20		201	$	(2,676	)	$	181,577	$	(114,656	)	$	(18,918	)	$	45,347		$	(15	)	$	45,332


	Common Stock				Treasury Stock					Additional Paid-In Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity			Non-Redeemable, Non-Controlling Interest			Total Equity
	Shares		Amount		Shares		Amount			Additional Paid-In Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity			Non-Redeemable, Non-Controlling Interest			Total Equity
	(dollars and shares in thousands)
Balance, January 1, 2018		18,233	$	18		6	$	(116	)	$	155,829	$	(33,726	)	$	(14,806	)	$	107,199		$	78		$	107,277
Issuance of common stock upon the exercise of stock options		8		—		—		—			57		—			—			57			—			57
Issuance of common stock upon the vesting of Restricted Stock Units, net of share cancellations		330		—		—		—			—		—			—			—			—			—
Issuance of common stock for acquisitions		789		1		—		—			11,435		—			—			11,436			—			11,436
Stock withheld to cover employee taxes on stock-based compensation		—		—		84		(1,130	)		—		—			—			(1,130	)		—			(1,130	)
Stock-based compensation		—		—		—		—			3,282		—			—			3,282			—			3,282
Cumulative effect adjustment from implementation of ASU 2016-16		—		—		—		—			—		(338	)		—			(338	)		—			(338	)
Foreign currency translation		—		—		—		—			—		—			(592	)		(592	)		—			(592	)
Non-controlling owner distributions		—		—		—		—			—		—			—			—			(66	)		(66	)
Net income (loss)		—		—		—		—			—		(9,885	)		—			(9,885	)		60			(9,825	)

Balance, June 30, 2018		19,360	$	19		90	$	(1,246	)	$	170,603	$	(43,949	)	$	(15,398	)	$	110,029		$	72		$	110,101

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 exercise of stock options		1		—		—		—			3		—			—			3			—			3
Issuance of common stock upon the vesting of Restricted Stock Units, net of share cancellations		295		1		—		—			—		—			—			1			—			1
Issuance of common stock for the Intelie earn-out		208		—		—		—			3,000		—			—			3,000			—			3,000
Stock withheld to cover employee taxes on stock-based compensation		—		—		109		(1,406	)		—		—			—			(1,406	)		—			(1,406	)
Stock-based compensation		—		—		—		—			5,628		—			—			5,628			—			5,628
Foreign currency translation		—		—		—		—			—		—			336			336			—			336
Non-controlling owner distributions		—		—		—		—			—		—			—			—			(135	)		(135	)
Net income (loss)		—		—		—		—			—		(18,139	)		—			(18,139	)		60			(18,079	)

Balance, June 30, 2019		19,969	$	20		201	$	(2,676	)	$	181,577	$	(114,656	)	$	(18,918	)	$	45,347		$	(15	)	$	45,332

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, ~~2017~~2018 included in the Company’s Annual Report on Form10-K filed with the Securities and Exchange Commission on March ~~6, 2018.~~15, 2019.

Significant Accounting Policies

~~Please~~In addition to the accounting policies described below, please refer to RigNet’s Annual Report on Form10-K for fiscal year ~~2017~~2018 for information regarding the Company’s accounting policies.

Revenue Recognition -– Revenue from Contracts with Customers

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

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

~~Managed Services~~MCS and ~~Applications andInternet-of-Things~~Apps & IoT customers are primarily served under fixed-price contracts, either on a monthly or day rate basis or for equipment sales and consulting services. ~~Our contracts~~Contracts are generally in the form of Master Service Agreements, or MSAs, with specific services being provided under individual service ~~orders that~~orders. Offshore contracts generally have a term of up to three years with renewal ~~options, while land-based locations~~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).

Performance Obligations Satisfied Over Time—– The delivery of service represents the single performance obligation under ~~Managed Services~~MCS and ~~Applications andInternet-of-Things~~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 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~~fixed-price contracts is measured based on the ratio of costs incurred to total estimated contract costs (thecost-to-cost method). These estimates may be revised as additional information becomes available or as specific project circumstances change.

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

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Systems Integration contracts are billed in accordance with the terms of the contract which are typically either based on milestones or specified time intervals. As of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the amount of ~~costs and estimated earnings in excess of billings on uncompleted contracts~~CIEB related to Systems Integration projects was ~~$3.7~~$8.7 million and ~~$2.4~~$7.1 million, respectively. Under long-term contracts, amounts recorded in ~~costs and estimated earnings in excess of billings on uncompleted contracts~~CIEB may not be realized or paid ~~respectively,~~ within aone-year period. As of June 30, ~~2018~~2019 and December 31, ~~2017, $3.3~~2018, $1.4 million and ~~$0.4 million,~~none, respectively, of amounts billed to customers in excess of revenue recognized to date ~~are~~were classified as a current liability, under deferred revenue. ~~All of the billings in excess of costs as of December 31, 2017 were recognized as revenue during the six months ended June 30, 2018.~~

Variable Consideration – Systems Integration - The Company records revenue on contracts relating to certain probable claims and unapproved change orders by including in revenue an amount less than or equal to the amount of costs incurred to date relating to these probable claims and unapproved change orders, thus recognizing no profit until such time as claims are finalized or change orders are approved. The amount of unapproved change orders and claim revenues is included in the Company’s ~~Condensed~~ Consolidated Balance Sheets as part of ~~costs and estimated earnings in excess of billings on uncompleted contracts.~~CIEB. No material unapproved change orders ~~and~~or claims revenue were included in ~~costs and estimated earnings in excess of billings on uncompleted contracts~~CIEB as of June 30, ~~2018~~2019 and December 31, ~~2017.~~2018. As new facts become known, an adjustment to the estimated recovery is made and reflected in the current period.

Backlog - —As of June 30, ~~2018,~~2019, we have backlog for our percentage of completion projects of ~~$19.6~~$37.1 million, which will be recognized over the remaining contract term for each contract. Percentage of completion contract terms are typically one to three years.

Leases

Effective with adoption of Accounting Standards UpdateNo. 2016-02 (ASU2016-02), 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 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 ~~May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards UpdateNo. 2014-09~~ ~~(ASU2014-09),~~ Revenue from Contracts with Customers (Topic 606). The core principle of this amendment is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued Accounting Standards Update~~No. 2015-14~~ ~~(ASU2015-14),~~ ~~Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. In~~ March ~~2016, the FASB issued Accounting Standards UpdateNo. 2016-08~~ ~~(ASU2016-08),~~ Revenue from Contracts with Customers: Principal versus Agent Considerations. The amendments are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. In April and May of 2016, the FASB issued Accounting Standards Update~~No. 2016-10~~ ~~(ASU2016-10)~~ ~~and Accounting Standards UpdateNo. 2016-12~~ ~~(ASU2016-12),~~ Revenue from Contracts with Customers (Topic 606), respectively, that provide scope amendments, performance obligations clarification and practical expedients. These ASUs allow for the use of either the full or modified retrospective transition method and are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, with early adoption permitted for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company adopted this ASU on January 1, 2018. The Company’s evaluation of this ASU included a detailed review of representative contracts from each segment and comparing historical accounting policies and practices to the new standard. The adoption of this ASU did not have any material impact on the Company’s condensed consolidated financial statements.

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

~~In August 2016, the FASB issued Accounting Standards UpdateNo. 2016-15~~ ~~(ASU2016-15),~~ Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The new ASU reduces diversity of practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics, including the treatment of contingent consideration payments made after a business combination. The ASU is effective for annual and interim reporting periods beginning after December 15, 2017. The Company adopted this ASU as of the first quarter 2019, and it requiredright-of-use liabilities on ~~January 1, 2018. The adoption~~the consolidated balance sheet of ~~this ASU did not have any material~~$6.5 million as of March 31, 2019, of which $5.8 million were long-term and $0.7 million were current, with no related impact on the Company’s ~~condensed consolidated financial statements.~~

~~In October 2016,~~Condensed Consolidated Statement of Equity or Comprehensive Loss. The Company elected the ~~FASB issued~~package of practical expedients permitted under the transition guidance within the new standard which, among other things, allows companies to carry forward their historical lease classification and to not record leases with an initial term of less than 12 months. The Company has used the optional transition method permitted under Accounting Standards UpdateNo. ~~2016-16~~2018-11 (ASU~~2016-16),~~2018-11). ~~Income Taxes: Intra-Entity Transfer~~Accordingly, prior year amounts have not been adjusted and continue to be reflected in accordance with Company’s historical accounting. The Company’s credit agreement excludes the impact of ~~Assets Other Than Inventory. The new~~ ASU requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, rather than the previous requirement to defer recognition of current and deferred income taxes for an intra-entity asset transfer until the asset had been sold to an outside party. The ASU is effective for annual

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~In November 2016, the FASB issued Accounting Standards UpdateNo. 2016-18~~2016-02. ~~(ASU2016-18),~~ which includes restricted cash in the cash and cash equivalents balance in the statement of cash flows. The ASU is effective for annual and interim reporting periods beginning after December 15, 2017. The Company adopted this ASU on January 1, 2018. The adoption of this ASU did not have any material impact on the Company’s condensed consolidated financial statements.

In June 2018, the FASB issued Accounting Standards UpdateNo. 2018-07 (ASU2018-07), which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The ASU is effective for annual and interim reporting periods beginning after December 15, 2018. The adoption of this ASU did not have any material impact on the Company’s condensed consolidated financial statements.

In August 2018, the FASB issued ASUNo. 2018-13 (ASU2018-13), which eliminates disclosures, modifies existing disclosures and adds new Fair Value disclosure requirements to Topic 820 for the range and weighted average of 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, 2019. 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.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In August 2018, the FASB issued ASUNo. 2018-15 (ASU2018-15), which provides guidance on implementation costs incurred in a cloud computing arrangement that is a service contract. The ASU is effective for annual and interim reporting periods beginning after December 15, 2019. The Company is currently in the process of evaluating the impact the adoption of this ASU will have on the Company’s condensed consolidated financial statements.

Note 2 – Business Combinations

Auto-Comm and SAFCON

On April 18, 2018, RigNet completed the separate acquisitions of Automation Communications Engineering Corp. (Auto-Comm) and Safety Controls, Inc. (SAFCON) for an aggregate purchase price of ~~$6.3~~$6.7 million. Of this aggregate purchase price RigNet paid $2.2 million in cash and $4.1 million in ~~stock.~~stock in April 2018. In September 2018, the Company paid $0.3 million in cash for a working capital adjustment.

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

The assets and liabilities of Auto-Comm and SAFCON have been recorded at their estimated fair values at the date of acquisition. The excess of the purchase price over the estimated fair values of the underlying net tangible and identifiable intangible assets and liabilities has been recorded as goodwill. The Company’s allocation of the purchase price is preliminary as the amounts related to the identifiable intangible assets and effects of income taxes resulting from the transaction, are still being finalized.

The goodwill of ~~$1.0~~$1.4 million arising from the ~~acquisition~~acquisitions consists largely of growth prospects, synergies and other benefits that the Company believes will result from combining the operations of the Company, ~~and~~ Auto-Comm and SAFCON, as well as other intangible assets that do not qualify for separate recognition, such as assembled workforce in place at the date of acquisition. The goodwill recognized is expected to be nondeductible for income tax purposes. The ~~acquisition~~acquisitions of Auto-Comm and SAFCON, including goodwill, isare included in the Company’s condensed consolidated financial statements as of the acquisition date and isare primarily reflected in the Systems Integration segment.

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



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


Total purchase price
         $ 6,338

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~


	Weighted Average Estimated Useful Life (Years)		Fair Market Values
			(in thousands)
Current assets						$	4,947
Property and equipment							132
Trade name		7		$	540
Customer relationships		7			980

Total identifiable intangible assets							1,520
Goodwill							1,387
Current liabilities							(1,006	)
Deferred tax liability							(319	)

Total purchase price						$	6,661

Intelie

On March 23, 2018, RigNet completed its acquisition of Intelie^TM Soluções Em Informática S.A (Intelie), for an estimated aggregate purchase price of $18.1 million. Of this aggregate purchase price, RigNet paid R$10.6 million (BRL) (or approximately $3.2 million) in cash, $7.3 million in stock and expects to pay $7.6 million worth of RigNet stock as contingent considerationearn-out, estimated as of the date of acquisition. The initial estimate of theearn-out payable was preliminary and remains subject to change based on the achievement of certain post-closing performance targets under the acquisition agreement. The maximumearn-out is $17.0 ~~million.~~million payable in stock. Intelie is a real-time, predictive analytics company that combines an operational understanding with a machine learning approach. Intelie facilitates innovation via Intelie Pipes^TM, a distributed query language with a complex event processor to aggregate

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

and normalize real-time data from a myriad of data sources. This technology enables the Intelie LIVE^TM platform to solve data integration, data quality, data governance and monitoring problems. Intelie LIVE is an operational intelligence platform that empowers clients to make timely, data-driven decisions in mission-critical real-time operations, including drilling, and longer-term, data-intensive projects, such as well planning. Intelie LIVE has broad applicability across many industry verticals. Intelie is based in Brazil.

The assets and liabilities of Intelie have been recorded at their estimated fair values at the date of acquisition. The excess of the purchase price over the estimated fair values of the underlying net tangible and identifiable intangible assets and liabilities has been recorded as goodwill. The Company’s allocation of the purchase price is preliminary as the amounts related to contingent consideration, identifiable intangible assets, and the effects of income taxes resulting from the transaction, are still being finalized.

Theearn-out for Intelie is measured at fair value in each reporting period, based on level 3 inputs, with any change to fair value recorded in the Condensed Consolidated Statements of Comprehensive ~~Loss in each reporting period.~~Loss. As of June 30, ~~2018,~~2019, the fair value of theearn-out was ~~$7.6 million.~~$7.9 million with $4.4 million in deferred revenue and other current liabilities and $3.5 million in other long-term liabilities. During the ~~three and~~ six months ended June 30, ~~2018,~~2019, RigNet recognized accreted interest expense on the Intelieearn-out of $0.1 million with corresponding increases to other liabilities. Portions of theearn-out are payable in RigNet stock on the first, second and third anniversary of the closing of the acquisition based on certain post-closing performance targets under the acquisition agreement. On April 29, 2019, the agreement was amended to clarify the calculation of certain contingent consideration, but did not change the amount or form of consideration that could be paid pursuant to the purchase agreement. In May 2019, the Company issued 208,356 shares of its common stock, with an aggregate value of $3.0 million, as payment for the portion of theearn-out earned as of the first anniversary of the closing of the acquisition.

The goodwill of $10.7 million arising from the acquisition consists largely of growth prospects, synergies and other benefits that the Company believes will result from combining the operations of the Company and Intelie, as well as other intangible assets that do not qualify for separate recognition, such as assembled workforce in place at the date of acquisition. None of the goodwill recognized is expected to be deductible for income tax purposes. The acquisition of Intelie, including goodwill, is included in the Company’s condensed consolidated financial statements as of the acquisition date and is reflected in the ~~Applications andInternet-of-Things~~Apps & IoT segment.


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

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

Total purchase price					$	18,141	(a)						$	18,141	(a)

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

Actual and Pro Forma Impact of the 2018 Acquisitions

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

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

The following table represents supplemental pro forma information as if the 2018 acquisitions of Auto-Comm, SAFCON and Intelie had occurred on January 1, ~~2017.~~

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








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








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








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

Basic
   $ (0.23 )    $ (0.23 )    $ (0.51 )    $ (0.34 )








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

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

~~Energy Satellite Services~~

On July 28, 2017, RigNet acquired substantially all the assets of Energy Satellite Services (ESS). ESS is a supplier of wireless communications services via satellite networks primarily to the midstream sector of the oil and gas industry for remote pipeline monitoring. The assets acquired enhance RigNet’s Supervisory Control and Data Acquisition (SCADA) customer portfolio, and strengthen the Company’s US land 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 $8.5 million arising from the acquisition consists largely of growth prospects, synergies and other benefits that the Company believes will result from combining the operations of the Company and ESS, as well as other intangible assets that do not qualify for separate recognition, such as assembled workforce in place at the date of acquisition. The goodwill recognized is expected to be deductible for income tax purposes. The acquisition of ESS, including goodwill, is included in the Company’s condensed consolidated financial statements as of the acquisition date and is reflected in the Applications and~~Internet-of-Things~~ ~~segment.~~

   Weighted Average
Estimated Useful
Life (Years)    Fair Market Values
      (in thousands)
Accounts receivable
         $ 392
Property and equipment
         1,000
Covenant not to compete
   5    3,040
Customer relationships
   7    9,870



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


Total purchase price
         $ 22,200

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~Data Technology Solutions~~

On July 24, 2017, RigNet acquired substantially all the assets of Data Technology Solutions (DTS). DTS provides comprehensive communications and IT services to the onshore, offshore, and maritime industries, as well as disaster relief solutions to global corporate clients. The Company paid $5.1 million in cash for the DTS assets. DTS is based in Louisiana.

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

The goodwill of $0.7 million arising from the acquisition consists largely of growth prospects, synergies and other benefits that the Company believes will result from combining the operations of the Company and DTS, as well as other intangible assets that do not qualify for separate recognition, such as assembled workforce in place at the date of acquisition. The goodwill recognized is expected to be deductible for income tax purposes. The acquisition of DTS, including goodwill, is included in the Company’s condensed consolidated financial statements as of the acquisition date and is reflected in the Managed Services segment.

   Fair
Market Values
   (in thousands)
Property and equipment
   $ 4,553
Goodwill
   704
Accounts payable
   (152 )


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. Cyphre is a cybersecurity company that provides advanced enterprise data protection leveraging BlackTIE^® ~~hardware-based encryption featuring low latency protection for files at rest and in transit for both public and private cloud. Cyphre is based in Texas.~~

The contingent consideration for Cyphre is measured at fair value, based on level 3 inputs, with any change to fair value recorded in the Condensed Consolidated Statements of Comprehensive Loss in each reporting period. As of June 30, 2018, the fair value of the contingent consideration was $4.0 million. During the three and six months ended June 30, 2018, RigNet recognized accreted interest expense on the Cyphre contingent consideration of $0.1 million with corresponding increases to other liabilities.

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

The goodwill of $4.6 million arising from the acquisition consists largely of growth prospects, synergies and other benefits that the Company believes will result from combining the operations of the Company and Cyphre, as well as other intangible assets that do not qualify for separate recognition, such as assembled workforce in place at the date of acquisition. The goodwill recognized is expected to be deductible for income tax purposes. The acquisition of Cyphre, including goodwill, is included in the Company’s condensed consolidated financial statements as of the acquisition date and is reflected in the Applications and~~Internet-of-Things~~ ~~segment.~~2018.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

   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)


	Three Months Ended June 30,			Six Months Ended June 30,
	2018			2018
	(in thousands, except per share amounts)
Revenue	$	60,547		$	118,297
Expenses		64,784			127,593

Net loss	$	(4,237	)	$	(9,296	)

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

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

Diluted	$	(0.23	)	$	(0.51	)

~~(a)~~

~~Includes $3.8~~The Company incurred acquisition-related costs of $0.1 million and $0.3 million in ~~contingent consideration estimated as of the date of acquisition.~~

~~Actual and Pro Forma Impact of the 2017 Acquisitions~~

~~The 2017 acquisitions of ESS, DTS and Cyphre contributed $3.5 million of revenue and $2.8 million to net income for~~ the three months ended June 30, ~~2018. The 2017 acquisitions of ESS, DTS~~2019 and ~~Cyphre contributed $6.3~~2018, respectively, and $0.4 million ~~of revenue~~ and ~~$4.7~~$1.1 million ~~to net income for~~in the six months ended June 30, ~~2018. Cyphre’s revenue~~2019 and ~~net loss were zero~~2018, respectively, reported in general and ~~$0.3 million, respectively, for the three and six months ended June 30, 2017.~~administrative costs.

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

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




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




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




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

Basic
   $ (0.18 )    $ (0.20 )




Diluted
   $ (0.18 )    $ (0.20 )

Note 3 – Business and Credit Concentrations

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

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

Interest Rate Risk

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

Foreign Currency Risk

The Company has exposure to foreign currency risk, as a portion of the Company’s activities are conducted in currencies other than U.S. dollars. Currently, the Norwegian ~~Krone,~~Kroner, the British Pound Sterling and the 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 concentrated in the oil and gas, maritime, pipeline, engineering and construction industries. The Company mitigates the risk of financial loss from defaults through defined collection terms in each contract or service agreement and periodic evaluations of the collectability of accounts receivable. The Company provides an allowance for doubtful accounts which is adjusted when the Company becomes aware of a specific customer’s inability to meet its financial obligations or as a result of changes in the overall aging of accounts receivable. Although no one customer comprised over 10% of our revenue for the six months ended June 30, 2019, our top 5 customers generated 24.2% of the Company’s revenue for the six months ended June 30, 2019.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 ~~2018~~2019 or ~~2017.~~2018. Liquidity risk is managed by continuously monitoring forecasted and actual cash flows and by matching the maturity profiles of financial assets and liabilities (see Note 6 – Long-Term Debt).

Note 4 – Goodwill and Intangibles

Goodwill

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

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

The Company acquired ~~$1.0~~$1.4 million of goodwill in the Systems Integration segment from the Auto-Comm and SAFCON ~~acquisition~~acquisitions completed on April 18, 2018 (see Note 2 – Business Combinations).

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

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

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

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

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~The Company~~ performs its annual impairment test as of July 31^stof each ~~year,~~year. In connection with the July 31, 2018 impairment test, the most recent annual test ~~being~~ performed ~~as of July 31, 2017. The July 2017 annual test resulted in no impairment as the fair value of each reporting unit substantially exceeded the carrying value plus goodwill of that reporting unit.~~

~~As of November~~prior to June 30, ~~2017, the Company’s latest completed interim goodwill impairment testing,~~2019, the fair values of the Company’s reporting units ~~are substantially~~were in excess of their carrying ~~values. As such,~~values and no impairment was noted.

MCS had $22.4 million of goodwill as of June 30, 2019, and fair value exceeded carrying value by 34.7% as of the ~~test resulted~~July 31, 2018 annual impairment test. Apps & IoT had $22.9 million of goodwill as of June 30, 2019, and fair value exceeded carrying value by 48.1% as of the July 31, 2018 annual impairment test. Systems Integration had $1.4 million of goodwill as of June 30, 2019, and fair value exceeded carrying value by 126.5% as of the July 31, 2018 annual impairment test. Any future downturn in our business could adversely impact the key assumptions in our impairment test. While we believe that there appears to be no ~~impairment. The November 30, 2017 interim test was conducted due to~~indication of current or future impairment, historical operating results may not be indicative of future operating results and events and circumstances may occur causing a ~~change~~triggering event in ~~segments after the Company completed the acquisition of ESS.~~a period as short as three months.

No impairment indicators have been identified in any reporting unit as of June 30, ~~2018 and December 31, 2017.~~2019.

As of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, goodwill was ~~$48.5~~$46.7 million and ~~$37.1~~$46.6 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,covenants-not-to-compete, brand name, ~~backlog,~~licenses, technology and ~~licenses~~backlog acquired as part of the Company’s acquisitions. Intangibles also includeinternal-use software. The Company’s intangibles have useful lives ranging from 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.

No impairment indicators have been identified in any reporting unit as of June 30, ~~2018.~~2019.

As of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, intangibles were ~~$38.9~~$29.5 million and ~~$30.4~~$33.7 million, respectively. During the three months ended June 30, ~~2018~~2019 and ~~2017,~~2018, the Company recognized amortization expense of ~~$2.5~~$2.4 million and ~~$1.5~~$2.5 million, respectively. During the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, the Company recognized amortization expense of $4.9 million and $4.6 million, ~~and $2.8 million,~~ respectively.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth expected amortization expense of intangibles for the remainder of ~~2018~~2019 and the following years (in thousands):


2018		4,447
2019		7,532		3,059
2020		6,568		6,160
2021		6,241		5,752
2022		5,871		5,472
2023				4,828
Thereafter		8,223		4,251

	$	38,882	$	29,522

Note 5 – Restricted Cash

As of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, 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 Note 6 – Long-Term Debt).

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

Note 6 – Long-Term Debt

As of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the following credit facilities and long-term debt arrangements with financial institutions were in place:

   June 30,    December 31,
   2018    2017
   (in thousands)
Term loan, net of unamortized deferred financing costs
   $ 12,096    $ 14,503
Revolving loan
   45,900    43,400
Capital lease
   148    211




   58,144    58,114
Less: Current maturities of long-term debt
   (4,822 )    (4,814 )
Current maturities of capital lease
   (127 )    (127 )




   $ 53,195    $ 53,173


	June 30,			December 31,
	2019			2018
	(in thousands)
Term Loan	$	7,500		$	10,000
Term-Out Loan		28,500			—
Revolving credit facility (RCF)		75,150			67,150
Unamortized deferred financing costs		(647	)		(315	)
Finance lease		554			192

		111,057			77,027
Less: Current maturities of long-term debt		(10,619	)		(4,831	)
Current maturities of finance lease		(164	)		(111	)

	$	100,274		$	72,085

Credit Agreement

~~On November 6, 2017, the~~The Company ~~entered into~~and certain of its subsidiaries are party to a third amended and restated credit agreement, dated as of November 6, 2017, with four participating financial ~~institutions. The credit agreement~~institutions (as amended from time to time, the Credit Agreement), which provides for a $15.0 million term loan (Term Loan), a $30.0 millionterm-outfacility ~~(Term~~(Term-Out Loan) and an $85.0 million revolving credit facility (RCF). The RCF andTerm-Out Loan mature on April 6, 2021. The Term Loan matures on ~~November 6,~~December 31, 2020.

On February 13, 2019, the Company entered into the first amendment to Credit Agreement to refinance $30.0 million of outstanding draws under the existing $85.0 million RCF with the new $30.0 millionTerm-Out Loan.

On June 7, 2019, the Company entered into a second amendment to the Credit Agreement (Second Amendment), which (i) permits the Company to exclude up to $5.0 million in legal and related costs for the GX Dispute (see Note 11 – Commitments and Contingencies) from the calculation of Consolidated EBITDA (as defined under the Credit Agreement), (ii) permits the Company to exclude from the calculation of Consolidated Funded Indebtedness up to $30.0 million of undrawn surety bonds and (iii) revises the threshold of proceeds from asset dispositions above which the Company must prepay on the Term Out Loan to $5.0 million. Consolidated EBITDA and Consolidated Funded Indebtedness arenon-GAAP metrics defined in the Credit Agreement.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Credit Agreement required a $45.0 million reserve (Specified Reserve) under the RCF that was released and made available for borrowing for payment of monetary damages from the GX dispute. The RCF contains asub-limit of up to $25.0 million for commercial andstand-by letters of credit and performance ~~bonds.~~bonds issued by the parties under the Credit Agreement. The facilities under the credit agreement are secured by substantially all the assets of the Company.

Under the ~~credit agreement, both~~Credit Agreement, the Term Loan,Term-Out Loan and the RCF bear interest at a rate of LIBOR plus a margin ranging from 1.75% to ~~2.75%~~3.00% based on a consolidated leverage ratio defined in the ~~credit agreement.~~Credit Agreement. Interest on the Term Loan,Term-Out Loan and RCF is payable ~~monthly and principal~~monthly. Principal installments of $1.25 million and $1.5 million under the Term Loan andTerm-Out Loan, respectively, are due quarterly. The weighted average interest rate for the three months ended June 30, 2019 and 2018 were 5.3% and ~~2017 were~~ 4.8% ~~and 3.1%~~, respectively. The weighted average interest rate for the six months ended June 30, 2019 and 2018 were 5.3% and ~~2017 were~~ 4.5% ~~and 3.1%~~, respectively, with an interest rate of ~~4.8%~~5.2% at June 30, ~~2018.~~2019.

Term Loan

As of June 30, ~~2018,~~2019, the Term Loan had an outstanding principal balance of ~~$12.5~~$7.5 million, excluding the impact of unamortized deferred financing costs.

Term-Out Loan

As of June 30, 2019, theTerm-Out Loan had an outstanding principal balance of $28.5 million.

RCF

As of June 30, ~~2018, $45.9~~2019, $75.2 million in draws remain outstanding under the RCF.

~~In July 2018,~~ During the quarter ended June 30, 2019, the Company ~~made a draw of $10.0~~borrowed $40 million onunder the RCF ~~primarily to pay~~in connection with the ~~TECNORearn-out.~~initial payment of the GX Dispute settlement.

Covenants and Restrictions

The Company’s ~~credit agreement~~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, defined in the credit agreement, of less than or equal to 2.75 to 1.0 and a consolidated~~ fixed charge coverage ratio of not less than 1.25 to ~~1.0~~1.00. Additionally, the Credit Agreement requires a consolidated leverage ratio, as defined in the Credit Agreement, of ~~June 30, 2018.~~less than or equal to 2.75 to 1.00. The consolidated leverage ratio increases to 3.25 to 1.00 for four quarters starting in the 2^nd quarter of 2019. The consolidated leverage ratio then decreases to 3.00 to 1.00 for three quarters, and then decreases to 2.75 to 1.00 for all remaining quarters. If any default occurs related to these covenants that is not cured or waived, the unpaid principal and any accrued interest ~~shall~~can be declared immediately due and payable. The facilities under the Credit Agreement are secured by substantially all the assets of the Company.

In April 2019, the Company determined that in periods beginning at least as early as March 31, 2014, it had incurred and not appropriately included certain surety bonds or other similar instruments in its consolidated leverage ratio calculation as defined by the Credit Agreement. As a result, on May 6, 2019, the Company entered into a Consent and Waiver (Consent) to the Credit Agreement with the financial institutions party thereto under which the Company is permitted to exclude certain incurred surety bonds and other similar instruments from the calculation of Consolidated Funded Indebtedness (as defined in the credit agreement) for the period ended June 30, ~~2018, and December 31, 2017,~~2019. In addition, the Consent waived all specified violations for all prior periods.

On June 7, 2019, the Company ~~believes it was in compliance with all covenants.~~

~~Performance Bonds and Letters of Credit~~

~~On September 14, 2012, NesscoInvsat Limited,~~entered into a ~~subsidiary of RigNet, secured a performance bond facility. On November 6, 2017, this facility became a part of~~second amendment to the third amended and restated credit agreement (Credit Agreement), which permits the Company to exclude up to $5.0 million in legal and ~~falls under~~related costs for the ~~$25.0~~GX Dispute from the calculation of Consolidated EBITDA, permits the Company to exclude from the calculation of Consolidated Funded Indebtedness up to $30.0 million of undrawn surety bonds and revises the threshold of proceeds from asset dispositions above which the Company must prepay on the Term Out Loan to $5.0 million. Consolidated EBITDA and Consolidated Funded Indebtedness are~~sub-limit~~non-GAAP ofmetrics defined in the ~~RCF~~Credit Agreement.

We believe we have accurately calculated and reported our required debt covenant calculations for ~~commercial and standby letters of credit and performance bonds.~~

~~As of~~the June 30, ~~2018, there were no outstanding standby letters of credit. There were $2.4 million of performance bonds outstanding.~~2019 reporting period and are in compliance with the required covenant ratios.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Performance Bonds, Surety Bonds and Other Similar Instruments

As of June 30, 2019, there were $30.4 million of performance bonds, surety bonds and similar instruments outstanding of which $1.6 million is issued by the parties under the Credit Agreement. As of June 30, 2019, there were $0.1 million outstanding standby letters of credit and bank guarantees.

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.

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 2019 and the following years (in thousands):


2018		2,472
2019		4,914		5,411
2020		50,758		10,814
2021				94,677
2022				116
2023				39

Total debt, including current maturities	$	58,144	$	111,057

Note 7 – Fair Value Disclosures

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

•

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

•

Restricted Cash— Reported amounts approximate fair value.

•

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

•

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

•

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

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

Theearn-out for Intelie is measured at fair value in each reporting period, based on level 3 inputs, with any change to fair value recorded in the Condensed Consolidated Statements of Comprehensive ~~Loss in each reporting period.~~Loss. As of June 30, ~~2018,~~2019, the fair value of theearn-out was ~~$7.6 million.~~$7.9 million with $4.4 million in deferred revenue and other current liabilities and $3.5 million in other long-term liabilities . During the three and six months ended June 30, 2019, RigNet recognized accreted interest expense on the Intelieearn-out of $0.1 million, and $0.1 million, respectively, with corresponding increases to other liabilities. During the three and six months ended June 30, 2018, RigNet recognized accreted interest expense on the Intelieearn-out of $0.1 million, and $0.1 million, respectively. During the three and six months ended June 30, 2019, RigNet recognized an increase in the fair value of theearn-out of $1.3 million and $1.3 million, respectively. During the three and six months ended June 30, 2018, RigNet recognized an increase in the fair value of theearn-out of $2.8 million and $2.8 million, respectively. Theearn-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. In May 2019, the Company issued 208,356 shares of its common stock, with ~~corresponding increases to other liabilities.~~an aggregate value of $3.0 million, as payment for the portion of theearn-out earned as of the first anniversary of the closing of the acquisition.

The contingent consideration for Cyphre, a cybersecurity company acquired in May 2017, is measured at fair value in each reporting period, based on level 3 inputs, with any change to fair value recorded in the Condensed Consolidated Statements of Comprehensive Loss. As of June 30, 2019, the fair value of the contingent consideration was $3.5 million, of which $0.3 million is in other current liabilities and $3.2 million is in other long-term liabilities. During the three and six months ended June 30, 2019, RigNet recognized

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

accreted interest expense on the Cyphre contingent consideration of $0.1 million, and $0.1 million, respectively, with corresponding increases to other liabilities. During the three and six months ended June 30, 2018, RigNet recognized accreted interest expense on the Cyphre contingent consideration of $0.1 million, and $0.1 million, respectively.

Theearn-out for Orgtec S.A.P.I. de C.V., d.b.a. TECNOR (TECNOR), acquired in February 2016, was measured at fair value, based on level 3 inputs, with any change to fair value recorded in the Condensed Consolidated Statements of Comprehensive Loss in each reporting period. As of June 30, 2018, the fair value of the contingent consideration was $4.0 million. During the three and six months ended June 30, 2018, RigNet recognized accreted interest expense on the Cyphre contingent consideration of $0.1 million with corresponding increases to other liabilities. During the three and six months ended June 30, 2017, RigNet recognized accreted interest expense on the Cyphre contingent consideration of $0.1 million.

The~~earn-out~~ for TECNOR is measured at fair value, based on level 3 inputs, with any change to fair value recorded in the Condensed Consolidated Statements of Comprehensive Loss in each reporting period. As of June 30, 2018, the fair value of theearn-out ~~was~~of $8.0 million ~~which~~ was paid in July 2018. ~~As of June 30, 2018, the fair value for the agreement to collect certain accounts receivable was $0.8 million. The change in fair value in the three and six months ended June 30, 2018 was due to 2~~^nd ~~quarter 2018 negotiations with the sellers of TECNOR on the amount of theearn-out.~~ During the three and six months ended June 30, 2018, RigNet recognized accreted interest expense on the TECNORearn-out liability of $0.1 million with corresponding increases to other liabilities. ~~During~~

Note 8 – Income Taxes

The Company’s effective income tax rate was (56.2%) and (36.9%) for the three and six months ended June 30, ~~2017, RigNet recognized accreted interest expense on the TECNORearn-out~~ ~~liability of $0.1 million and $0.2 million,~~2019, respectively. ~~Additionally, the Company has agreed to pay the sellers of TECNOR up to $1.0 million in either cash or RigNet stock payable in 2019 for the collection of certain accounts receivable balances.~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~Note 8 – Income Taxes~~

The Company’s effective income tax rate was 17.7% and 3.2% for the three and six months ended June 30, 2018, respectively. The Company’s effective ~~income tax rate was 2.3% and (5.3%) for the three and six months ended June 30, 2017, respectively. The Company’s effective~~ tax rate is affected by factors including changes in ~~applicable laws and regulations,~~ valuation allowances, fluctuations in income across jurisdictions with varying tax rates, and changes in income tax reserves, including related penalties and interest.

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

The Company received an IRS notice informing us of an audit of the Company’s 2016 income tax return. 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.

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.

The Company believes that it is reasonably possible that a decrease of up to ~~$3.4~~$2.6 million in unrecognized tax benefits, including related interest and penalties, may be necessary within the coming year due to lapse in statute of limitations.

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

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

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

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

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

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

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

Note 9 – Stock-Based Compensation

During the six months ended June 30, ~~2018,~~2019, the Company granted a total of ~~357,877 restricted stock units (RSUs)~~592,663 stock-based awards to certain ~~directors,~~ officers and employees of the Company under the 2010 Omnibus Incentive Plan (2010 Plan). Of these, the Company granted the following stock-based awards associated with the long term incentive plan (LTIP): (i) ~~141,068~~190,588 restricted stock units (RSUs) to certain officers and employees that generally vest over a three year period of continued employment, with 33% of the RSUs vesting on each of the first three anniversaries of the grant date, (ii) 22,189 RSUs to certain officers and employees that generally vest over a four year period of continued employment, with 25% of the RSUs vesting on each of the first four anniversaries of the grant date, ~~(ii) 11,188 RSUs~~(iii) 60,361 performance share units (PSUs) to certain officers and employees that generally cliff vest ~~over a two year period of continued employment, with 50% of~~on the ~~RSUs vesting on each of the first two anniversaries~~third anniversary of the grant date ~~(iii) 48,179~~and are subject to continued employment and certain performance based targets and (iv) 86,772 RSUs to outside directors that vest in ~~2019 and (iv) 157,442 unrestricted stock grants to~~2020. The ultimate number of PSUs issued is based on a multiple determined by certain ~~officers and employees that vested immediately.~~

performance-based targets. The fair value of ~~restricted stock units~~RSUs and PSUs 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, net of forfeitures.

Additionally, the Company granted 232,753 unrestricted stock grants associated with payment of the Company’s 2018 short term incentive plan to certain officers and employees that vested immediately.

During the six months ended June 30, ~~2018, 34,483~~2019, the Company also granted 28,923 options to purchase our common stock with an exercise price of $15.06 to certain officers and employees of the Company as part of the LTIP under the 2010 Plan. Options granted have a contractual term of seven years and vest over a three-year period of continued employment, with 33% of the options vesting on each of the first three anniversaries of the grant date.

The fair value of each stock option award is estimated on the grant date using a Black-Scholes option valuation model, which uses certain assumptions as of the date of grant. The assumptions used for the stock option grants made during the six months ended June 30, 2019, were as follows:

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


	Six Months Ended June 30,
	2019
Expected volatility		49	%
Expected term (in years)		7
Risk-free interest rate		2.5	%
Dividend yield		—

Based on these assumptions, the weighted average grant date fair value of stock options granted during the six months ended June 30, 2019 was $7.94 per option.

During the six months ended June 30, 2019, 22,712 RSUs and ~~23,123~~4,377 stock options were forfeited.

Stock-based compensation expense related to the Company’s stock-based compensation plans for the three and six months ended June 30, 2019 was $1.2 million and $5.6 million, respectively. Stock-based compensation expense related to the Company’s stock-based compensation plans for the three and six months ended June 30, 2018 ~~and 2017~~ was ~~$3.3~~$0.8 million and ~~$1.9~~$3.3 million, respectively. As of June 30, ~~2018,~~2019, there was ~~$3.2~~$5.5 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 ~~2.0~~1.9 years.

Note 10 – 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, 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 six months ended June 30, ~~2018,~~2019, there were approximately ~~580,410~~348,197 and ~~636,460~~489,747 potentially issuable shares excluded from the Company’s calculation of diluted EPS that were excluded because the Company incurred a loss in the period and to include them would have been anti-dilutive.

For the three and six months ended June 30, ~~2017,~~2018, there were approximately ~~541,964~~580,410 and ~~575,214~~636,460 potentially issuable shares ~~respectively,~~ excluded from the Company’s calculation of diluted EPS that were excluded because the Company incurred a loss in the period and to include them would have been anti-dilutive.

Note 11 – Commitments and Contingencies

~~Legal Proceedings~~

In August 2017, the Company filed litigation in Harris County District Court and arbitration against one of its former Chief Executive Officers for, among other things, breach of fiduciary duty, misappropriation of trade secrets, unfair competition and breach of contract. That former executive filed counterclaims against the Company and one of its independent directors. The parties entered into a settlement agreement resolving all claims amongst themselves in May 2018 and dismissed the litigation and arbitration proceedings. The Company has incurred legal expense of approximately $0.2 million in connection with this dispute for the six months ended June 30, 2018.

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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 2014take-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).~~years.

In June 2019, the Company announced that it reached a settlement with Inmarsat ~~initiated arbitration regarding~~that concludes the GX ~~dispute 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 of termination of the agreement to Inmarsat. In addition, the Company has filed certain counterclaims against Inmarsat. The parties have agreed to divide the arbitration into two phases, with the first phase to decide if RigNet’s purchase obligation ever commenced and the second phase to address RigNet’s counterclaims against Inmarsat. The parties attended an arbitration hearing on the first phasepaid $45.0 million in June ~~2018~~2019 and ~~are currently awaiting~~paid $5.0 million in July 2019 and will pay $0.8 million in the ~~decision~~third quarter of ~~the arbitration panel.~~2020. The Company had an accrued liability of $5.8 million as of June 30, 2019.

The Company ~~has~~incurred GX dispute Phase II costs of $2.2 million and $4.4 million for the three and six months ended June 30, 2019, respectively. The Company incurred legal expenses of $0.8 million and $1.4 million in connection with the GX dispute for the three and six months ended June 30, 2018. The Company may continue to incur significant legal fees, related expenses and management time in the future. The Company cannot predict the ultimate outcome of the GX dispute, the total costs to be incurred or the potential impact on personnel.2018, respectively.

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.

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 has received~~Company is undergoing a routine sales tax audit ~~notice~~ from a state where the Company has operations. ~~Per the notice, the~~The audit can cover up to a four-year period. The Company is in the early stages of the ~~process,~~audit, and does not have any estimates of further exposure, if any, for the tax years under review.

Operating Leases

The Company adopted the new lease accounting standard effective with the first quarter of 2019 and has used the optional transition method permitted under ASU2018-11. Accordingly, prior year amounts have not been adjusted and continue to be reflected in accordance with Company’s historical accounting.

The Company’s leasing activities primarily consist of leases of real-estate including office space under lease agreements expiring on various dates through 2025. For the three months and six months ended June 30, ~~2018 and 2017,~~2019, the Company recognized expense under operating leases, which approximates cash paid and includes short-term leases, of $0.7 million and ~~$1.0~~$1.4 million, respectively. For the three months and six months ended June 30, 2018, ~~and 2017,~~ the Company recognized expense under operating leases, which approximates cash paid and includes short-term leases, of ~~$1.4~~$0.7 million and ~~$2.0~~$1.4 million, respectively.

As of June 30, ~~2018,~~2019, future undiscounted minimum lease ~~obligations~~obligation maturities for the remainder of ~~2018~~2019 and future years were as follows (in thousands):


2018		1,425
2019		1,805	$	939
2020		905		1,387
2021		657		896
2022		671		817
2023				802
Thereafter		1,821		1,269

Total lease payments			$	6,110
	$	7,284
Less present value discount				(503	)

Amounts recognized in Balance Sheet			$	5,607

Amounts recognized in Balance Sheet
Deferred revenue and other current liabilities				765
Right-of-use lease liability – long-term portion				4,842

Total right to use lease liability			$	5,607

Operating leaseright-of-use assets for leases were $3.9 million as of June 30, 2019.

Theright-of-use assets and liabilities for leases were discounted at a weighted-average discount rate of 5.3%. The weighted-average remaining lease term as of June 30, 2019 was 4.8 years.

As of December 31, 2018, future undiscounted minimum lease obligation maturities for 2019 and future years were as follows (in thousands):

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


2019		1,822
2020		1,115
2021		780
2022		692
2023		659
Thereafter		1,044

	$	6,112

Commercial Commitments

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

As of June 30, ~~2018,~~2019, the Company had the following commercial commitments related to satellite and network services for the remainder of ~~2018~~2019 and the future years thereafter (in thousands):

2018    12,280
2019    10,176
2020    901
2021    109


   $ 23,466

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


2019		7,540
2020		7,614
2021		1,088
2022		169

	$	16,411

Note 12 – Segment Information

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

RigNet considers its business to consist of the following segments:

•

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

•

Applications andInternet-of-Things (Apps & IoT).The Apps & IoT segment provides applicationsover-the-top of the ~~Managed Services~~network layer including ~~Supervisory Control and Data Acquisition (SCADA) and~~ Software as a Service (SaaS) offerings ~~including BlackTIE encryption,~~such as cybersecurity, applications for safety and workforce productivity such as weather monitoring primarily in the North Sea ~~(METOCEAN)~~(MetOcean), a real-time ~~predictive analytics~~machine learning and AI data platform (Intelie Pipes and Intelie LIVE) and certain other value-added services such as Adaptive Video Intelligence (AVI). This segment also includes the privatemachine-to-machine IoT data networks including Supervisory Control and Data Acquisition (SCADA) provided primarily 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.

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

The Company’s business segment information as of and for the three ~~and six~~ months ended June 30, ~~2018~~2019 and ~~2017,~~2018, is presented below.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


	Three Months Ended June 30, 2018													Three Months Ended June 30, 2019
	Managed Services		Applications and Internet-of- Things		Systems Integration			Corporate and Eliminations			Consolidated Total			Managed Communication Services		Applications and Internet-of-Things		Systems Integration		Corporate and Eliminations			Consolidated Total
	(in thousands)													(in thousands)
Revenue	$	41,712	$	6,576	$	11,719		$	—		$	60,007		$	41,205	$	8,005	$	11,122	$	—		$	60,332
Cost of revenue (excluding depreciation and amortization)		25,307		3,165		7,774			—			36,246			25,019		4,387		7,113		—			36,519
Depreciation and amortization		5,645		836		665			1,210			8,356			5,059		1,226		639		755			7,679
Change in fair value ofearn-out/contingent consideration															—		—		—		1,284			1,284
Selling, general and administrative		5,023		430		557			13,725			19,735			3,346		835		570		12,659			17,410

Operating income (loss)	$	5,737	$	2,145	$	2,723		$	(14,935	)	$	(4,330	)	$	7,781	$	1,557	$	2,800	$	(14,698	)	$	(2,560	)

Capital expenditures		6,462		134		—			—			6,596			3,689		403		—		481			4,573

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

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

Capital expenditures		4,266		—		—			645			4,911

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

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

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

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

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

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


	Three Months Ended June 30, 2018
	Managed Communication Services		Applications and Internet-of-Things		Systems Integration		Corporate and Eliminations			Consolidated Total
	(in thousands)
Revenue	$	41,712	$	6,576	$	11,719	$	—		$	60,007
Cost of revenue (excluding depreciation and amortization)		25,307		3,165		7,774		—			36,246
Depreciation and amortization		5,645		836		665		1,210			8,356
Change in fair value ofearn-out/contingent consideration		—		—		—		2,778			2,778
Selling, general and administrative		5,023		430		557		10,947			16,957

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

Capital expenditures		6,462		134		—		—			6,596


	Six Months Ended June 30, 2019
	Managed Communications Services		Applications and Internet-of-Things		Systems Integration		Corporate and Eliminations			Consolidated Total
	(in thousands)
Revenue	$	83,538	$	16,020	$	18,284	$	—		$	117,842
Cost of revenue (excluding depreciation and amortization)		52,004		8,884		12,087		—			72,975
Depreciation and amortization		11,323		2,457		1,301		1,510			16,591
Change in fair value ofearn-out/contingent consideration		—		—		—		1,284			1,284
Selling, general and administrative		7,143		1,400		1,694		27,436			37,673

Operating income (loss)	$	13,068	$	3,279	$	3,202	$	(30,230	)	$	(10,681	)

Total assets		159,874		45,281		24,747		14,471			244,373
Capital expenditures		10,325		836		—		501			11,662


	Six Months Ended June 30, 2018
	Managed Communications Services		Applications and Internet-of-Things		Systems Integration		Corporate and Eliminations			Consolidated Total
	(in thousands)
Revenue	$	83,762	$	11,912	$	18,166	$	—		$	113,840
Cost of revenue (excluding depreciation and amortization)		51,052		6,250		12,625		—			69,927
Depreciation and amortization		11,371		1,683		1,317		1,972			16,343
Change in fair value ofearn-out/contingent consideration		—		—		—		2,800			2,800
Selling, general and administrative		9,238		784		880		22,668			33,570

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

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

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents revenue earned from the Company’s domestic and international operations for the three and six months ended June 30, ~~2018~~2019 and ~~2017.~~2018. Revenue is based on the location where services are provided or goods are sold. Due to the mobile nature of RigNet’s customer base and the services provided, the Company works closely with its customers to ensure rig or vessel moves are ~~closely~~ monitored to ensure location of service information is properly reflected.


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017		2019		2018		2019		2018
	(in thousands)								(in thousands)
Domestic	$	16,006	$	14,022	$	33,634	$	28,974	$	28,881	$	16,006	$	53,508	$	33,634
International		44,001		35,140		80,206		68,260		31,451		44,001		64,334		80,206

Total	$	60,007	$	49,162	$	113,840	$	97,234	$	60,332	$	60,007	$	117,842	$	113,840

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 June 30, ~~2018~~2019 and December 31, ~~2017.~~2018.


	June 30,		December 31,		June 30,		December 31,
	2018		2017		2019		2018
	(in thousands)				(in thousands)
Domestic	$	71,671	$	68,942	$	77,420	$	73,615
International		76,838		58,895		65,918		70,334

Total	$	148,509	$	127,837	$	143,338	$	143,949

Note 13 – Related Party

The Company has ~~entered into~~ a reseller arrangement with Darktrace, which is an artificial intelligence company in cybersecurity that is partially owned by Kohlberg Kravis Roberts & Co. L.P. (KKR). KKR is a significant stockholder of the Company. Under the arrangement, the Company will sell Darktrace’s cybersecurity audit services with the Company’s cybersecurity offerings. ~~The~~In the three and six months ended June 30, 2019, the Company ~~has not yet~~ purchased ~~services~~$0.1 million from Darktrace ~~but expects to do so~~ in the ~~future.~~ordinary course of business.

Vissim AS is now a vendor following a competitive request for 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 its chairman of its board one of our board members. In the three and six months ended June 30, 2019, the Company purchased $0.6 million from Vissim AS in the ordinary course of business.

Note 14 – Restructuring Costs – Cost Reduction Plans

During the six months ended June 30, 2019, the Company incurred a netpre-tax restructuring expense of $0.6 million reported as general and administrative expense in the Corporate segment associated with the reduction of 25 employees.

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 June 30, ~~2018~~2019 and for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018 included elsewhere herein, and with our ~~annual report~~Annual Report on Form10-K for the year ended December 31, ~~2017.~~2018. 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. 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. Forward-Looking statements may include statements about:

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

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

demand for our services and solutions;

the advantages of our services compared to others;

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

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

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

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

our expectations regarding the deductibility of goodwill for tax purposes;

our business and corporate development strategy, including statements concerning our ability to pursue, consummate and ~~acquisitions;~~integrate merger and acquisition opportunities successfully;

the amount and timing of contingent consideration payments arising from our ~~ability to develop and market additional products and services;~~acquisitions;

our ability to manage and grow our business and execute our business strategy, including developing and marketing additional ~~Applications andInternet-of-Things~~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 ~~pursue, consummate~~develop and ~~integrate merger~~market additional products and ~~acquisition opportunities successfully;~~

~~the GX dispute;~~

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

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~~Annual Report on Form10-K for the year

ended December 31, ~~2017~~2018 and elsewhere in this Quarterly Report on Form10-Q. If one or more of these factors materialize, or if any underlying assumptions prove incorrect, our actual future results, performance or achievements may vary materially from any projected future results, performance or achievements expressed or implied by these forward-looking statements. The forward-looking statements speak only as of the date made, and other than as required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Our Operations

We are ~~a global technology company that provides customized communications services, applications, real-time machine learning,~~the leading provider of ultra-secure, intelligent networking solutions and cybersecurity solutions to enhance customer decision-making and business performance. We deliver a digital transformation bundle that accelerates technology adoption and empowers customers to be always connected, always secure, and always learning.

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. 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 real-timeAI-backed data analytics platform to enhance customer decision making and business performance.

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. Managed Services was renamed Managed Communications Services (MCS). We report our operations through the following reportable segments:

•

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

•

Applications andInternet-of-Things (Apps & IoT).Our Apps & IoT segment provides applicationsover-the-top of the network layer including Software as a Service (SaaS) offerings such as cybersecurity, applications for safety and workforce productivity such as weather monitoring primarily in the North Sea (MetOcean), a real-time machine learning and AI data platform (Intelie Pipes and Intelie LIVE) and certain other value-added services such as Adaptive Video Intelligence (AVI). This segment also includes the privatemachine-to-machine IoT data networks including Supervisory Control and Data Acquisition (SCADA) provided primarily 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.

Customers in our MCS and ~~Applications andInternet-of-Things~~ ~~customers~~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 that~~orders. Offshore contracts generally have a term of up to three years with renewal ~~options, while land-based locations~~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.

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

•

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

•

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

•

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

Cost of revenue consists primarily of satellite charges, voice and data termination costs, network operations expenses, internet connectivity fees, equipment purchases for Systems Integration projects and direct service labor. Satellite charges consist of the costs associated with obtaining satellite bandwidth (the measure of capacity) used in the transmission of service to and from ~~leased~~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 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 service providers.

Recent Developments

~~In July 2018,~~On June 24, 2019, we announced that we reached a settlement with Inmarsat that concludes the GX dispute. Pursuant to the settlement we paid ~~$8.0~~$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 2020.We have an accrued liability of $5.8 million as of June 30, 2019. As previously disclosed, Inmarsat plc (Inmarsat), a satellite telecommunications company, filed arbitration with the International Centre for Dispute Resolution tribunal (the panel) in October 2016 concerning a January 2014take-or-pay agreement to purchase up to $65.0 million, under certain conditions, of GX capacity from Inmarsat over several years. We incurred GX dispute Phase II costs of $2.2 million and $4.4 million for the ~~TECNORearn-out.~~three and six months ended June 30, 2019, respectively. We ~~made~~incurred legal expenses of $0.8 million and $1.4 million in connection with the GX dispute for the three and six months ended June 30, 2018, respectively.

On June 7, 2019, we entered into a ~~$10.0~~second amendment to the third amended and restated credit agreement (Credit Agreement), which (i) permits us to exclude up to $5.0 million ~~draw~~in legal and related costs for the GX Dispute from the calculation of Consolidated EBITDA, (ii) permits us to exclude from the calculation of Consolidated Funded Indebtedness up to $30.0 million of undrawn surety bonds and (iii) revises the threshold of proceeds from asset dispositions above which we must prepay on the Term Out Loan to $5.0 million. Consolidated EBITDA and Consolidated Funded Indebtedness arenon-GAAP metrics defined in the Credit Agreement. On February 13, 2019, we entered into the first amendment to the Credit Agreement with four participating financial institutions. The Credit Agreement provides for a $15.0 million term loan facility (Term Loan), a $30.0 millionterm-out facility(Term-Out Loan) and an $85.0 million revolving credit facility (RCF) ~~primarily to pay~~. The RCF andTerm-Out Loan mature on April 6, 2021. The Term Loan matures on December 31, 2020.

In the ~~TECNOR~~U.S. Gulf of Mexico, we have substantially completed the buildout of our 4G LTE and~~earn-out.~~5G-enabled ~~The change in fair value of the~~network, where we are partnered with~~earn-out~~T-Mobile, ~~was due to 2~~^nd ~~quarter 2018 negotiations with the sellers of TECNOR on the amount of theearn-out.~~and we are already carrying live traffic. Additionally, we ~~have agreed to pay the sellers of TECNOR up to $1.0 million~~purchased an office in ~~either cash or RigNet stock payable in 2019 for the collection of certain accounts receivable balances.~~

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

On March 23, 2018, we completed the acquisition of Intelie Soluções Em Informática S.A (Intelie), for an estimated aggregate purchase price of $18.1 million. Of this aggregate purchase price, we paid R$10.6 million (BRL) (or approximately $3.2 million) in cash, $7.3 million in stock andlegacy facilities. We expect to ~~pay $7.6 million worth~~move into the new facility in the third quarter of ~~RigNet stock as contingent considerationearn-out,~~ ~~estimated as of the date of acquisition. The initial estimate of theearn-out~~ ~~payable was preliminary and remains subject to change based on the achievement of certain post-closing performance targets under the acquisition agreement. The maximumearn-out~~ is $17.0 million. Intelie is a real-time, predictive analytics company that combines an operational understanding with a machine learning approach. Intelie facilitates innovation via Intelie Pipes, a distributed query language with a complex event processor to aggregate and normalize real-time data from a myriad of data sources. This technology enables the Intelie LIVE platform to solve data integration, data quality, data governance and monitoring problems. Intelie LIVE is an operational intelligence platform that empowers clients to make timely, data-driven decisions in mission-critical real-time operations, including drilling, and longer-term, data-intensive projects, such as well planning. Intelie is based in Brazil.2019.

As of June 30, ~~2018,~~2019, we have backlog for our percentage of completion projects of ~~$19.6~~$37.1 million.

Known Trends and Uncertainties

Operating Matters

Uncertainties in the oil and gas industry may continue to impact our profitability. The fundamentals of the oil and gas industry we serve remain challenged into ~~2018,~~2019, 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. drilling rig counts ~~have~~ increased in 2017 and the first three quarters of 2018 ~~since~~from their 2016 lows, the oil and gas environment continues to be challenged with operators focusing on projects with shorterpay-back periods that generally require less capital investment and lower ~~day rates~~costs from service providers and drilling contractors. The average price of Brent crude, a key indicator of activity for the oil and gas industry, was $66.07 per barrel for the six months ending June 30, 2019 compared to an average of $70.67 for the six months ending June 30, 2018. Brent crude spot prices increased in the first three quarters of 2018 and peaked at $86.07 on October 4, 2018. From the recent October 4, 2018 high, Brent crude oil prices decreased over 40.0% in the fourth quarter of 2018. In the first half of 2019, Brent crude oil prices recovered to the $70 per barrel range. Certain analysts are not presently predicting meaningful increases in offshore drilling rig utilization for the remainder of 2019, but are predicting more meaningful improvements in utilization and day rates in 2020 or 2021. As a result, we believe drilling contractors are cautiously optimistic about a gradual demand recovery. The offshore drilling contracting environment remains challenged, with major offshore drilling contractors ~~experiencing~~having experienced significant pressure on day rates, ~~and expecting gradual demand recovery.~~which in turn has had a negative impact on the rates we are able to charge customers. Generally, a prolonged lower oil price environment decreases exploration and development drilling investment, utilization of drilling rigs and the activity of the global oil and gas industry that we serve.

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

   2nd Quarter    1st Quarter    4th Quarter    3rd Quarter    2nd Quarter
   2018    2018    2017    2017    2017
Selected Operational Data:

Offshore drilling rigs (1)
   190    188    182    184    173
Offshore Production
   320    310    304    316    296
Maritime
   177    176    172    165    134
Other sites (2)
   610    525    513    510    448










Total
   1,297    1,199    1,171    1,175    1,051

~~(1)~~

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

~~(2)~~

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

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

Sales Tax Audit

We ~~have received~~are undergoing a routine sales tax audit ~~notice~~ from a state where we have operations. ~~Per the notice, the~~The audit can cover up to a four-year period. We are in the early stages of the ~~process,~~audit and do not have any estimates of further exposure, if any, for the tax years under review.

~~Global Xpress (GX) Dispute~~

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

We have incurred legal expenses of $1.4 million in connection with the GX dispute for the six months ended June 30, 2018. We may continue to incur significant legal fees, related expenses and management time in the future. We cannot predict the ultimate outcome of the GX dispute, the total costs to be incurred or the potential impact on personnel.

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

Results of Operations

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


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
	(in thousands)												(in thousands)
Revenue	$	60,007		$	49,162		$	113,840		$	97,234		$	60,332		$	60,007		$	117,842		$	113,840

Expenses:
Cost of revenue (excluding depreciation and amortization)		36,246			33,038			69,927			62,913			36,519			36,246			72,975			69,927
Depreciation and amortization		8,356			7,552			16,343			14,868			7,679			8,356			16,591			16,343
Change in fair value ofearn-out/contingent consideration														1,284			2,778			1,284			2,800
Selling and marketing		4,189			2,132			7,138			3,568			2,952			4,189			6,745			7,138
General and administrative		15,546			9,878			29,232			20,390			14,458			12,768			30,928			26,432

Total expenses		64,337			52,600			122,640			101,739			62,892			64,337			128,523			122,640

Operating loss		(4,330	)		(3,438	)		(8,800	)		(4,505	)		(2,560	)		(4,330	)		(10,681	)		(8,800	)
Other expense, net		(895	)		(873	)		(1,348	)		(1,379	)		(1,362	)		(895	)		(2,528	)		(1,348	)

Loss before income taxes		(5,225	)		(4,311	)		(10,148	)		(5,884	)		(3,922	)		(5,225	)		(13,209	)		(10,148	)
Income tax benefit (expense)		926			101			323			(313	)		(2,204	)		926			(4,870	)		323

Net loss		(4,299	)		(4,210	)		(9,825	)		(6,197	)		(6,126	)		(4,299	)		(18,079	)		(9,825	)
Less: Net income attributable tonon-controlling interest		30			39			60			78			30			30			60			60

Net loss attributable to RigNet, Inc. stockholders	$	(4,329	)	$	(4,249	)	$	(9,885	)	$	(6,275	)	$	(6,156	)	$	(4,329	)	$	(18,139	)	$	(9,885	)

OtherNon-GAAP Data:
Adjusted EBITDA	$	8,098		$	6,053		$	15,517		$	13,278		$	9,775		$	8,098		$	18,161		$	15,517

The following represents selected financial operating results for our segments:


	Three Months Ended June 30,					Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017			2018		2017			2019		2018		2019		2018
	(in thousands)										(in thousands)
Managed Services:
Managed Communications Services:
Revenue	$	41,712	$	40,625		$	83,762	$	82,288		$	41,205	$	41,712	$	83,538	$	83,762
Cost of revenue (excluding depreciation and amortization)		25,307		25,549			51,052		50,896			25,019		25,307		52,004		51,052
Depreciation and amortization		5,645		6,222			11,371		12,245			5,059		5,645		11,323		11,371
Selling, general and administrative		5,023		4,983			9,238		9,422			3,346		5,023		7,143		9,238

Managed Services operating income	$	5,737	$	3,871		$	12,101	$	9,725
Managed Communication Services operating income											$	7,781	$	5,737	$	13,068	$	12,101

Applications andInternet-of-Things:
Revenue	$	6,576	$	2,430		$	11,912	$	4,861		$	8,005	$	6,576	$	16,020	$	11,912
Cost of revenue (excluding depreciation and amortization)		3,165		1,995			6,250		3,450			4,387		3,165		8,884		6,250
Depreciation and amortization		836		7			1,683		14			1,226		836		2,457		1,683
Selling, general and administrative		430		298			784		786			835		430		1,400		784

Applications &Internet-of-Things operating income	$	2,145	$	130		$	3,195	$	611		$	1,557	$	2,145	$	3,279	$	3,195

Systems Integration:
Revenue	$	11,719	$	6,107		$	18,166	$	10,085		$	11,122	$	11,719	$	18,284	$	18,166
Cost of revenue (excluding depreciation and amortization)		7,774		5,494			12,625		8,567			7,113		7,774		12,087		12,625
Depreciation and amortization		665		611			1,317		1,198			639		665		1,301		1,317
Selling, general and administrative		557		422			880		892			570		557		1,694		880

Systems Integration and Automation operating income (loss)	$	2,723	$	(420	)	$	3,344	$	(572	)
Systems Integration and Automation operating income											$	2,800	$	2,723	$	3,202	$	3,344

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

Three Months Ended June 30, ~~2018~~2019 and ~~2017~~2018

Revenue.Revenue increased by ~~$10.8~~$0.3 million, or ~~22.1%~~0.5%, to $60.3 million for the three months ended June 30, 2019 from $60.0 million for the three months ended June 30, ~~2018 from $49.2 million~~2018. Revenue for the three months ended June 30, 2017. Revenue increased in all segments. The Systems Integration segment increased $5.6 million, or 91.9%, primarily due to the acquisition of Auto-Comm and SAFCON and increased activity of Systems Integration projects. The Apps & IoT segment increased ~~$4.1~~$1.4 million, or ~~170.6%~~21.7%, due to our ~~growth strategy which focuses~~focus on growth ~~into~~of the application layer and IoT space, ~~including~~which was partially offset by a decrease in Systems Integration revenue of $0.6 million and a decrease of $0.5 million in the ~~acquisition of Intelie and ESS. The Managed Services segment increased $1.1 million, or 2.7%, due to increased site count coupled with the acquisition of DTS.~~MCS segment.

Cost of Revenue (excluding depreciation and amortization).Cost of revenue (excluding depreciation and amortization) increased by ~~$3.2~~$0.3 million, or ~~9.7%~~0.8%, to $36.5 million for the three months ended June 30, 2019 from $36.2 million for the three months ended June 30, 2018 from $33.0 million for the three months ended June 30, 2017. Cost of revenue (excluding depreciation and amortization) increased in the Systems Integration segment by $2.3 million due to the acquisition of Auto-Comm and SAFCON and increased activity of Systems Integration projects.2018. Cost of revenue (excluding depreciation and amortization) increased in the Apps & IoT segment by $1.2 million as we ~~invested in~~continue our strategy ~~of expanding into the~~to grow our application layer and IoT space including ~~the acquisition of Intelie, ESS and Cyphre.~~Intelie. Cost of revenue (excluding depreciation and amortization) decreased in the ~~Managed Services~~MCS segment by ~~$0.2~~$0.3 million. Cost of revenue (excluding depreciation and amortization) decreased in the Systems Integration segment by $0.7 million.

Depreciation and Amortization.Depreciation and amortization expense ~~increased~~decreased by ~~$0.8~~$0.7 million to $7.7 million for the three months ended June 30, 2019 from $8.4 million for the three months ended June 30, ~~2018 from $7.6 million for the three months ended June 30, 2017.~~2018. The ~~increase~~decrease is primarily attributable to ~~additions to property, plant and equipment and~~the intangibles from ~~acquisitions and capital expenditures.~~the July 2012 acquisition of Nessco being fully depreciated.

Selling and Marketing.Selling and marketing expense ~~increased $2.1~~decreased $1.2 million to $3.0 million for the three months ended June 30, 2019 from $4.2 million for the three months ended June 30, ~~2018 from $2.1 million for the three months ended June 30, 2017.~~2018. This ~~increase~~decrease was due to ~~investing in our growth strategy including increased sales and marketing personnel costs.~~cost reductions.

General and Administrative.General and administrative expenses increased by ~~$5.7~~$1.7 million to ~~$15.5~~$14.5 million for the three months ended June 30, ~~2018~~2019 from ~~$9.9~~$12.8 million for the three months ended June 30, ~~2017.~~2018. General and administrative costs increased primarily due to ~~increased~~GX dispute legal costs and stock-based ~~compensation, legal expenses, acquisitions and acquisition related costs.~~compensation.

Income Tax Expense.Our effective income tax ~~rate was~~rates were (56.2%) and 17.7% ~~and 2.3%~~ for the three months ended June 30, ~~2018~~2019 and ~~2017,~~2018, 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.

Six Months Ended June 30, ~~2018~~2019 and ~~2017~~2018

Revenue.Revenue increased by ~~$16.6~~$4.0 million, or ~~17.1%~~3.5%, to $117.8 million for the six months ended June 30, 2019 from $113.8 million for the six months ended June 30, 2018, ~~from $97.2 million for~~driven by growth in the ~~six months ended June 30, 2017. Revenue increased in all segments. The Systems Integration~~Apps & IoT segment ~~increased $8.1 million, or 80.1%, primarily due to~~including the ~~acquisition~~2018 acquisitions of Intelie along with the 2018 acquisitions of Auto-Comm and SAFCON, ~~and increased activity of~~which is primarily in the Systems Integration ~~projects. The~~Segment. Revenue for the Apps & IoT segment increased ~~$7.1~~$4.1 million, or ~~145.1%~~34.5%, due to our ~~growth strategy which focuses~~focus on growth ~~into~~of the application layer and IoT space, including $1.8 million from the acquisition of Intelie and ~~ESS. The Managed Services segment increased $1.5~~$0.7 million ~~or 1.8%, due to increased site count coupled with~~from the acquisition of ~~DTS.~~Auto-Comm and SAFCON. Revenue for the Systems Integration segment increased $0.1 million, or 0.6%, which included $2.1 million from the acquisition of Auto-Comm and SAFCON.

Cost of Revenue (excluding depreciation and amortization).Cost of revenue (excluding depreciation and amortization) increased by ~~$7.0~~$3.0 million, or ~~11.1%~~4.4%, to $73.0 million for the six months ended June 30, 2019 from $69.9 million for the six months ended June 30, 2018 from $62.9 million for the six months ended June 30, 2017. Cost of revenue (excluding depreciation and amortization) increased in the Systems Integration segment by $4.1 million due to the acquisition of Auto-Comm and SAFCON and increased activity of Systems Integration projects.2018. Cost of revenue (excluding depreciation and amortization) increased in the Apps & IoT segment by ~~$2.8~~$2.6 million as we ~~invested in~~continue our strategy ~~of expanding into the~~to grow our application layer and IoT space including ~~the acquisition of Intelie, ESS and Cyphre.~~Intelie. Cost of revenue (excluding depreciation and amortization) increased in the ~~Managed Services~~MCS segment by ~~$0.2~~$1.0 million as a result of our increased site count during the period. Cost of revenue (excluding depreciation and amortization) decreased in the Systems Integration segment by $0.5 million.

Depreciation and Amortization.Depreciation and amortization expense increased by ~~$1.5~~$0.2 million to $16.6 million for the six months ended June 30, 2019 from $16.3 million for the six months ended June 30, ~~2018 from $14.9 million for the six months ended June 30, 2017.~~2018. The increase is primarily attributable to additions to property, plant and equipment and intangibles from acquisitions and capital expenditures.

Selling and Marketing.Selling and marketing expense ~~increased $3.6~~decreased $0.4 million to $6.7 million for the six months ended June 30, 2019 from $7.1 million for the six months ended June 30, ~~2018 from $3.6 million for the six months ended June 30, 2017.~~2018. This ~~increase~~decrease was due to ~~investing in our growth strategy including increased sales and marketing personnel costs.~~cost reductions.

General and Administrative.General and administrative expenses increased by ~~$8.8~~$4.5 million to ~~$29.2~~$30.9 million for the six months ended June 30, ~~2018~~2019 from ~~$20.4~~$26.4 million for the six months ended June 30, ~~2017.~~2018. General and administrative costs increased primarily due to increased stock-based compensation, increased GX dispute legal costs, restructuring costs and expenses attributable to a full period of operations of the 2018 acquisitions of Intelie, Auto-Comm and ~~acquisition related costs.~~SAFCON.

Income Tax Expense.Our effective income tax ~~rate was~~rates were (36.9%) and 3.2% ~~and (5.3%)~~ for the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, 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 June 30, ~~2018,~~2019, we had working capital, including cash and cash equivalents, of ~~$40.4~~$23.8 million.

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

During the next twelve months, we expect our principal sources of liquidity to be cash flows from operating activities, cash and cash equivalents on hand and availability under our ~~credit facility.~~Credit Agreement.

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


	Six Months Ended June 30,
	2019			2018
	(in thousands)
Condensed Consolidated Statements of Cash Flows Data:
Cash and cash equivalents including restricted cash, January 1,	$	23,296		$	36,141
GX Dispute payment		(45,000	)		—
Remaining net cash provided by operating activities		13,743			1,329

Net cash provided by (used in) operating activities		(31,257	)		1,329

Net cash used in investing activities		(11,756	)		(17,613	)
Net cash provided by (used in) financing activities		31,894			(1,211	)
Changes in foreign currency translation		265			1,308

Cash and cash equivalents including restricted cash, June 30,	$	12,442		$	19,954

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.

   Six Months Ended
June 30,
   2018    2017
   (in thousands)
Condensed Consolidated Statements of Cash Flows Data:

Cash and cash equivalents including restricted cash, January 1,
   $ 36,141    $ 58,805
Net cash provided by operating activities
   1,329    9,283
Net cash used in investing activities
   (17,613 )    (11,175 )
Net cash used in financing activities
   (1,211 )    (13,845 )
Changes in foreign currency translation
   1,308    1,172




Cash and cash equivalents including restricted cash, June 30,
   $ 19,954    $ 44,240

Currently, the Norwegian ~~Krone,~~Kroner, the British Pound Sterling and the Brazilian Real are the foreign currencies that could materially impact our liquidity. We presently do not hedge these risks, but evaluate financial risk on a regular basis and may utilize financial instruments in the future if deemed necessary. During the six months ended June 30, 2019 and 2018, 91.4% and ~~2017,~~ 91.5% ~~and 89.5%~~ of our revenue was denominated in U.S. dollars, respectively.

Operating Activities

Net cash ~~from~~used in operating activities was $31.3 million for the six months ended June 30, 2019 compared to net cash provided by operating activities of $1.3 million for the six months ended June 30, ~~2018 compared to cash from operating activities of $9.3 million for the six months ended June 30, 2017.~~2018. The decrease in cash from operating activities ~~during 2018~~ of ~~$8.0~~$32.6 million was primarily due to ~~increased operating loss coupled with~~the payment of $45.0 million towards the GX dispute settlement, the timing of paying our accounts payable partially offset by the timing of collecting receivables.

Our cash provided by operations is subject to many variables including the volatility of the oil and gas industry, ~~and,~~ 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 ~~$17.6~~$11.8 million and ~~$11.2~~$17.6 million for the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively.

Net cash used in investing activities during the six months ended June 30, 2019 and 2018 ~~and 2017~~ included ~~$5.1~~$11.9 million and ~~$4.9~~$12.7 million ~~for acquisitions,~~of capital expenditures, respectively. Net ~~cash~~Cash used in investing activities during the six months ended June 30, 2018 ~~and 2017 includes capital expenditures of $12.7~~included $5.1 million and $6.5 million, respectively. We expect capital expenditures to increase in the second half of the year as we build out our LTE network in the Gulf of Mexico and consolidate multiple Louisiana facilities into one facility.for acquisitions.

Financing Activities

Net cash provided by financing activities was $31.9 million for the six months ended June 30, 2019. Cash provided by financing activities for the six months ended June 30, 2019 included $40.0 million in proceeds from borrowings, partially offset by $6.1 million in principal payments on our long-term debt, $1.4 million withheld to cover employee taxes on stock-based compensation and $0.5 million in financing fees related to the consents, waiver and amendment to the Credit Agreement.

Net cash used in financing activities was $1.2 million ~~and $13.8 million~~ for the six months ended June 30, ~~2018 and 2017, respectively.~~2018. Cash used in financing activities for the six months ended June 30, 2018 included $2.6 million in principal payments on our long-term debt ~~$2.5 million in proceeds from borrowings~~ and $1.1 million withheld to cover employee taxes on ~~stock based~~stock-based compensation. ~~Cash used in financing activities for the six months ended June 30, 2017 included $14.5 million in principal payments on our long-term debt.~~

Credit Agreement

~~We have~~The Credit Agreement provides for a $15.0 million ~~term loan facility (Term Loan)~~Term Loan, a $30.0 millionTerm-Out Loan and an $85.0 million ~~revolving credit facility (RCF),~~RCF, which includes a $25.0 million sublimit for the issuance of commercial and standby letters of credit and performance ~~bonds.~~bonds issued by the parties under the Credit Agreement.

~~Both~~On June 7, 2019, we entered into a second amendment to the third amended and restated credit agreement (Credit Agreement), which permits the us to exclude up to $5.0 million in legal and related costs for the GX Dispute from the calculation of Consolidated EBITDA, permits us to exclude from the calculation of Consolidated Funded Indebtedness up to $30 million of undrawn surety bonds and revises the threshold of proceeds from asset dispositions above which the Company must prepay on the Term Out Loan to $5.0 million. Consolidated EBITDA and Consolidated Funded Indebtedness arenon-GAAP metrics defined in the Credit Agreement.

Under the Credit Agreement, the Term Loan, theTerm-Out Loan and the RCF bear an interest at a rate of LIBOR plus a margin ranging from 1.75% to ~~2.75%~~3.00%, based on a consolidated leverage ratio defined in the ~~credit agreement.~~Credit Agreement. Interest is payable monthly and principal installments of $1.25 million and $1.5 million under the Term Loan andTerm-Out Loan, respectively, are due ~~quarterly, with the balance due November 6, 2020.~~quarterly.

The weighted average interest rate for the three months ended June 30, 2019 and 2018 were 5.3% and ~~2017 were~~ 4.8% ~~and 3.1%~~, respectively. The weighted average interest rate for the six months ended June 30, 2019 and 2018 were 5.3% and ~~2017 were~~ 4.5% ~~and 3.1%~~, respectively, with an interest rate of ~~4.8%~~5.2% at June 30, ~~2018.~~2019. As of June 30, ~~2018,~~2019, the outstanding principal ~~amount of~~amounts were $7.5 million for the Term Loan, ~~was $12.5~~$28.5 million ~~excluding~~for the ~~impact of unamortized deferred financing costs. As of June 30, 2018, $45.9~~Term-Out Loan and $75.2 million ~~in draws on~~for the ~~RCF remain outstanding.~~RCF.

The ~~credit agreement~~Credit Agreement contains certain covenants and restrictions, including restricting the payment of cash dividends ~~when~~ under default, and maintaining certain financial covenants such as ~~a consolidated leverage ratio, defined in the credit agreement, of less than or equal to 2.75 to 1.0 and~~ a consolidated fixed charge coverage ratio of not less than 1.25 to ~~1.0.~~1.00. Additionally, the Credit Agreement requires a consolidated leverage ratio, as defined in the Credit Agreement, of less than or equal to 2.75 to 1.00. The consolidated leverage ratio increases to 3.25 to 1.00 for four quarters starting in the 2^nd quarter of 2019. The consolidated leverage ratio then decreases to 3.00 to 1.00 for three quarters, and then decreases to 2.75 to 1.00 for all remaining quarters. If any default occurs related to these covenants that was not cured or waived, the unpaid principal and any accrued interest ~~shall~~can be declared immediately due and payable. The facilities under the ~~credit agreement~~Credit Agreement are secured by substantially all our assets.

In April 2019, we determined that in periods beginning at least as early as March 31, 2014, we had incurred and not appropriately included certain surety bonds or other similar instruments in our consolidated leverage ratio calculation as defined by the credit agreement. As a result, on May 6, 2019, we entered into a Consent and Waiver (Consent) to the credit agreement with the financial institutions party thereto under which we are permitted to exclude certain incurred surety bonds and other similar instruments from the calculation of Consolidated Funded Indebtedness, as defined in the credit agreement, for the period ended June 30, ~~2018, we~~2019. In addition, the Consent waived all specified violations for all prior periods. The Second Amendment amended the Credit Agreement to permit the Company to exclude from the calculation of Consolidated Funded Indebtedness up to $30.0 million of undrawn surety bonds, performance bonds and similar instruments.

We believe we ~~were~~have accurately calculated and reported our required debt covenant calculations for the June 30, 2019 reporting period and are in compliance with ~~all~~the required covenant ratios. We expect to remain in compliance with our required debt covenant calculations for the foreseeable future, however, in the event that there are changes in economic conditions we can limit or control our spending through reductions in discretionary capital or other types of controllable expenditures, monetization of assets, or any combination of these alternatives if needed to remain in compliance with such covenants.

Off-Balance Sheet Arrangements

We do not engage in anyoff-balance sheet arrangements.

Non-GAAP Measure

Adjusted EBITDA should not be considered as 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 may not be comparable to similarly titled measures of other companies because other companies may not calculate Adjusted EBITDA or similarly titled measures in the same manner as we do. We prepare Adjusted EBITDA to eliminate the impact of items that we do not consider indicative of our core operating performance. We encourage you to evaluate these adjustments and the reasons we consider them appropriate. Net loss is the most comparable GAAP measure to Adjusted EBITDA.

We define Adjusted EBITDA as net loss plus interest ~~expense (benefit),~~expense; income tax expense (benefit); depreciation and ~~amortization,~~amortization; impairment of goodwill, intangibles, property, plant and ~~equipment,~~equipment; (gain) loss on sales of property, plant and equipment, net of ~~retirements,~~retirements; change in fair value of earn-outs and contingent ~~consideration,~~consideration; stock-based ~~compensation,~~compensation; acquisition ~~costs,~~costs; executive departure ~~costs,~~costs; restructuring ~~charges~~charges; the GX dispute; GX Dispute Phase II costs andnon-recurring items.

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

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

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

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

Our management uses Adjusted EBITDA:

To indicate profit contribution;

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

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

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

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

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

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

Adjusted EBITDA does not reflect interest expense;

Adjusted EBITDA does not reflect cash requirements for income taxes;

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

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

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

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

Adjusted EBITDA does not reflect acquisition costs;

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

Adjusted EBITDA does not reflect executive departure costs;

Adjusted EBITDA does not reflect restructuring charges;

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.

The following table presents a reconciliation of our net loss to Adjusted EBITDA.


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
	(in thousands)												(in thousands)
Net loss	$	(4,299	)	$	(4,210	)	$	(9,825	)	$	(6,197	)	$	(6,126	)	$	(4,299	)	$	(18,079	)	$	(9,825	)
Interest expense		1,007			613			1,966			1,232			1,269			1,007			2,507			1,966
Depreciation and amortization		8,356			7,552			16,343			14,868			7,679			8,356			16,591			16,343
(Gain) loss on sales of property, plant and equipment, net of retirements		21			13			(32	)		50			18			21			11			(32	)
Stock-based compensation		837			1,116			3,282			1,942			1,170			837			5,628			3,282
Restructuring														—			—			573			—
Change in fair value ofearn-out/contingent consideration		2,778			(846	)		2,800			(846	)		1,284			2,778			1,284			2,800
Executive departure costs		4			—			161			—			—			4			—			161
Acquisition costs		320			1,916			1,145			1,916			60			320			410			1,145
Income tax expense		(926	)		(101	)		(323	)		313
GX dispute Phase II costs														2,217			—			4,366			—
Income tax expense (benefit)														2,204			(926	)		4,870			(323	)

Adjusted EBITDA(non-GAAP measure)	$	8,098		$	6,053		$	15,517		$	13,278		$	9,775		$	8,098		$	18,161		$	15,517

We evaluate Adjusted EBITDA 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 increased by ~~$2.0~~$1.7 million to $9.8 million for the three months ended June 30, 2019, from $8.1 million for the three months ended June 30, ~~2018, from $6.1~~2018. Adjusted EBITDA increased by $2.6 million to $18.2 million for the ~~three~~six months ended June 30, ~~2017. Adjusted EBITDA increased by $2.2 million to~~2019, from $15.5 million for the six months ended June 30, ~~2018, from $13.3 million for the six months ended June 30, 2017.~~2018.

Item 3.Quantitative and Qualitative Disclosures about Market Risk

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

Our objective in managing our exposure to foreign currency exchange rate fluctuations is to reduce the impact of adverse fluctuations in earnings and cash flows associated with foreign currency exchange rates. We presently do not hedge these risks, but evaluate financial risk on a regular basis and may utilize financial instruments in the future if deemed necessary. During the six months ended June 30, 2019 and 2018, 8.6% and ~~2017,~~ 8.5% ~~and 10.5%~~, respectively, of our revenues were earned innon-U.S. currencies. At June 30, ~~2018~~2019 and ~~2017,~~2018, we had no significant outstanding foreign exchange contracts.

Our results of operations and cash flows are subject to fluctuations due to changes in interest rates primarily from our variable interest rate long-term debt. We presently do not hedge these risks, but evaluate financial risk on a regular basis and may utilize financial instruments in the future if deemed necessary. The following analysis reflects the annual impacts of potential changes in our interest rate to net loss attributable to us and our total stockholders’ equity based on our outstanding long-term debt onat June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, assuming those liabilities were outstanding for the previous twelve months:


	June 30,		December 31,		June 30,		December 31,
	2018		2017		2019		2018
	(in thousands)				(in thousands)
Effect on Net Income (Loss) and Equity - Increase/Decrease:
Effect on Net Income (Loss) and Equity – Increase/Decrease:
1% Decrease/increase in rate	$	581	$	581	$	1,111	$	770
2% Decrease/increase in rate	$	1,163	$	1,162	$	2,221	$	1,541
3% Decrease/increase in rate	$	1,744	$	1,743	$	3,332	$	2,311

Item 4.~~Controlsand~~Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our ~~Principal~~Chief Executive Officer (our principal executive officer) and our ~~Principal Accounting~~Chief Financial Officer (our principal financial officer), evaluated the effectiveness of our disclosure controls and procedures as of June 30, ~~2018.~~2019. The term “disclosure controls and procedures,” as defined in Rules13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the ~~Company’s~~company’s management, including its principal executive and principal ~~accounting~~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 June 30, ~~2018,~~2019, our ~~Principal~~Chief Executive Officer and ~~Principal Accounting~~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~~Except for the remediation of the previously reported material weakness noted below, 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 June 30, ~~2018~~2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management included in its assessment of internal control over financial reporting all consolidated ~~entities, but excluded certain acquiree processes~~entities.

Remediation of the Material Weakness

As disclosed in our Quarterly Report on Form10-Q for the period ended March 31, 2019 and our amended Annual Report on Form10-K for the year ended December 31, 2018, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2018 or March 31, 2019 due to a material weakness in internal control over financial reporting. Specifically, we did not properly design and operate adequate internal control over monitoring compliance with financial covenants stipulated by the Credit Agreement related to ~~operations from Auto-Comm~~the reporting of surety bonds and ~~SAFCON acquired~~other similar instruments.

During the quarter ended June 30, 2019, we undertook remediation measures to design new controls to monitor activities with respect to financial covenants stipulated by the ~~company~~Credit Agreement, and enhanced our internal controls related to our debt covenant calculation by:

requiring elevated approvals for any instrument which could impact our calculation of Consolidated Funded Indebtedness,

including additional certifications related to such instruments on ~~April 18, 2018,~~our regional financial checklists and ~~Intelie acquired by~~SOXsub-certifications, and

requiring applicable operations personnel to participate in our disclosure committee meetings.

We also believe we have accurately calculated and reported our required debt covenant calculations for the ~~Company on March 23, 2018.~~June 30, 2019 reporting period.

Accordingly, our management concluded the previously reported material weakness was remediated as of June 30, 2019.

PART II – OTHER INFORMATION

Item 1.Legal Proceedings

In ~~August 2017,~~June 2019, the Company filed litigation in Harris County District Court and arbitration against one of its former Chief Executive Officers for, among other things, breach of fiduciary duty, misappropriation of trade secrets, unfair competition and breach of contract. That former executive filed counterclaims againstannounced that it reached a settlement with Inmarsat that concludes the GX dispute. Pursuant to the settlement the Company paid $45.0 million in June 2019 and ~~one~~paid $5.0 million in July 2019 and will pay $0.8 million in the third quarter of ~~its independent directors. The parties entered into a settlement agreement resolving all claims amongst themselves in May 2018 and dismissed the litigation and arbitration proceedings.~~2020. The Company has ~~incurred legal expense~~an accrued liability of ~~approximately $0.2~~$5.8 million ~~in connection with this dispute for the six months ended~~as of June 30, ~~2018.~~2019.

As previously disclosed, 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 2014take-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). Inmarsat initiated arbitration regarding the GX dispute in October 2016. The parties dispute whether Inmarsat has met its contractual obligations with respect to the service under the agreement. In July 2017, pursuant to its contractual rights under the agreement, the Company delivered a notice of termination of the agreement to Inmarsat. In addition, the Company has filed certain counterclaims against Inmarsat. The parties have agreed to divide the arbitration into two phases, with the first phase to decide if RigNet’s purchase obligation ever commenced and the second phase to address RigNet’s counterclaims against Inmarsat. The parties attended an arbitration hearing on the first phase in June 2018 and are currently awaiting the decision of the arbitration panel.

The Company has incurred legal expenses of $1.4 million in connection with the GX dispute for the six months ended June 30, 2018. The Company may continue to incur significant legal fees, related expenses and management time in the future. The Company cannot predict the ultimate outcome of the GX dispute, the total costs to be incurred or the potential impact on personnel.

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

Item 1A.Risk Factors

There have been no material changes from the risk factors disclosed in “Part I, Item 1A. Risk Factors” of our Annual Report on Form10-K for the year ended December 31, ~~2017.~~2018.

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

None

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

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		Share Purchase Agreement between RigNet, Inc. and the shareholders of Orgtec S.A.P.I. de C.V., d.b.a. TECNOR dated November 3, 2015 (filed as Exhibit 2.2 to the Registrant’s Quarterly Report on Form10-Q filed with the SEC on May 9, 2016, and incorporated herein by reference)

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

3.1		Amended and Restated Certificate of Incorporation, as amended (filed as Exhibit 3.1 to the Registrant’s Quarterly Report on Form10-Q filed with the SEC on August 8, 2016, and incorporated herein by reference)

3.2		Amendment to Amended and Restated Certificate of Incorporation, effective May 18, 2016. (filed as Exhibit 3.2 to the Registrant’s Quarterly Report on Form10-Q filed with the SEC on August 8, 2016, and incorporated herein by reference)

3.3		Second Amended and Restated Bylaws of the Registrant, as amended (filed as Exhibit 3.3 to the Registrant’s Annual Report on Form10-K filed with the SEC on March 6, 2018, and incorporated herein by reference)

~~10.1+~~10.1		~~Omnibus Amendment~~Consent and Waiver to ~~Incentive Plan Award Agreements~~Third Amended and Restated Credit Agreement dated as of May 6, 2019, among RigNet, Inc., as Borrower, certain subsidiaries of RigNet, Inc. party thereto as Guarantors, Bank of America, N.A., as Admirative Agent, Swingline Lender and L/C Issuer, and the lenders party thereto (filed as Exhibit ~~10.3~~10.2 to the Registrant’s Quarterly Report on Form10-Q filed with the SEC on May 10, 2019, and incorporated herein by reference)

10.2		Second Amendment to Third Amended and Restated Credit Agreement, dated as of June 7, 2019, 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, and the Lenders party thereto. (filed as Exhibit 10.1 to the Registrant’s Current Report on Form8-K filed with the SEC on ~~May 3, 2018,~~June 13, 2019, and incorporated ~~herein~~ by reference)

~~10.2+~~		~~Form of Restricted Stock Unit Award Agreement~~

10.3+		~~Form of~~RigNet, Inc. 2019 Omnibus Incentive ~~Stock Option Award Agreement~~Plan

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

31.2		Certification of ~~Principal Accounting~~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 ~~Principal Accounting~~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

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


		RIGNET, INC.

Date: August 6, ~~2018~~2019	By:	/s/ ~~TONYA~~LEE M. ~~MCDERMOTT~~AHLSTROM
		~~Tonya~~Lee M. ~~McDermott~~Ahlstrom
		~~Interim~~Senior Vice President and Chief Financial Officer ~~and Vice President of Tax and Treasury~~ (Principal Financial Officer)

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

3837


	Fair Market Values
	(in thousands)
Property and equipment	$	4,553
Goodwill		704
Accounts payable		(152	)

Total purchase price	$	5,105


	2nd Quarter		1st Quarter		4th Quarter		3rd Quarter		2nd Quarter
	2018		2018		2017		2017		2017
Selected Operational Data:
Offshore drilling rigs (1)		190		188		182		184		173
Offshore Production		320		310		304		316		296
Maritime		177		176		172		165		134
Other sites (2)		610		525		513		510		448

Total		1,297		1,199		1,171		1,175		1,051