| 1880 S. Dairy Ashford, Suite 300 | Houston, TX 77077 281.674.0100 tel | 281.674.0101 fax | rig.net |
February 19, 2013
Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Mail Stop 3720
Washington, D.C. 20549
Attn: Larry Spirgel
| Re: | RigNet, Inc. |
Form 10-K for the fiscal year ended December 31, 2011
Filed March 8, 2012
File No. 001-35003
Ladies and Gentlemen:
By letter dated February 5, 2013, RigNet, Inc. (“RigNet”) has received the comments of the staff of the Division of Corporation Finance (the “Staff”) relating to the above referenced Forms 10-K (the “Comment Letter”).
RigNet’s responses to the comments are below. The following numbered paragraphs repeat the comments in the Comment Letter for your convenience, followed by RigNet’s responses to those comments.
Form 10-K for the Fiscal Year ended December 31, 2011
Item 6. Selected Financial Data, page 27
Non-GAAP Financial Measures, page 28
| 1. | We note your response to comment one and your proposed disclosure. Selected financial data which is required under Item 301 of Regulation S-K should be consistent with the captions reported in your financial statements. Since you do not report gross profit in your income statement, you should delete the gross profit line item in the Selected Financial Data and the Item 7 Table in the MD&A and separately report non-GAAP measures under “Other Non-GAAP Data.” |
Response: In future filings, beginning with our December 31, 2012 Annual Report on Form 10-K, the Company will make your proposed revisions to Item 6. Selected Financial Data andItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Securities and Exchange Commission
February 19, 2013
Page 2
Had these revisions been included in our Form 10-K for the fiscal year ended December 31, 2011 the table on page 27 would have been presented as follows:
| Year Ended December 31, | ||||||||||||||||||||
| 2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||
| (in thousands, except per share amounts) | ||||||||||||||||||||
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) Data: | ||||||||||||||||||||
Revenue | $ | 109,355 | $ | 92,921 | $ | 80,936 | $ | 89,909 | $ | 67,164 | ||||||||||
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Expenses: | ||||||||||||||||||||
Cost of revenue (excluding depreciation and amortization) | 48,645 | 42,479 | 35,165 | 39,294 | 29,747 | |||||||||||||||
Depreciation and amortization | 14,584 | 14,983 | 12,554 | 10,519 | 9,451 | |||||||||||||||
Impairment of goodwill | — | — | 2,898 | — | — | |||||||||||||||
Selling and marketing | 2,276 | 2,103 | 2,187 | 2,605 | 2,405 | |||||||||||||||
General and administrative | 26,960 | 20,756 | 16,444 | 21,277 | 20,338 | |||||||||||||||
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Total expenses | 92,465 | 80,321 | 69,248 | 73,695 | 61,941 | |||||||||||||||
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Operating income | 16,890 | 12,600 | 11,688 | 16,214 | 5,223 | |||||||||||||||
Interest expense | (1,249 | ) | (1,618 | ) | (5,146 | ) | (2,464 | ) | (5,497 | ) | ||||||||||
Other income (expense), net | 613 | (399 | ) | 304 | 27 | (63 | ) | |||||||||||||
Change in fair value of preferred stock derivatives | — | (17,190 | ) | (21,009 | ) | 2,461 | (1,156 | ) | ||||||||||||
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Income (loss) before income taxes | 16,254 | (6,607 | ) | (14,163 | ) | 16,238 | (1,493 | ) | ||||||||||||
Income tax expense | (6,502 | ) | (8,669 | ) | (5,457 | ) | (5,882 | ) | (628 | ) | ||||||||||
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Net income (loss) | 9,752 | (15,276 | ) | (19,620 | ) | 10,356 | (2,121 | ) | ||||||||||||
Less: Net income (loss) attributable to: | ||||||||||||||||||||
Non-redeemable, non-controlling interest | 234 | 292 | 292 | 235 | 167 | |||||||||||||||
Redeemable, non-controlling interest | — | 25 | 10 | 1,715 | 971 | |||||||||||||||
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Net income (loss) attributable to RigNet, Inc. stockholders | $ | 9,518 | $ | (15,593 | ) | $ | (19,922 | ) | $ | 8,406 | $ | (3,259 | ) | |||||||
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Net income (loss) attributable to RigNet, Inc. common stockholders | $ | 9,518 | $ | (18,807 | ) | $ | (22,118 | ) | $ | (4,190 | ) | $ | (3,931 | ) | ||||||
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Net income (loss) per share attributable to RigNet, Inc. common stockholders: | ||||||||||||||||||||
Basic | $ | 0.62 | $ | (3.38 | ) | $ | (4.16 | ) | $ | (0.79 | ) | $ | (0.74 | ) | ||||||
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Diluted | $ | 0.57 | $ | (3.38 | ) | $ | (4.16 | ) | $ | (0.79 | ) | $ | (0.74 | ) | ||||||
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Weighted average shares outstanding: | ||||||||||||||||||||
Basic | 15,387 | 5,571 | 5,312 | 5,301 | 5,279 | |||||||||||||||
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Diluted | 16,814 | 5,571 | 5,312 | 5,301 | 5,279 | |||||||||||||||
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Other Non-GAAP Data: | ||||||||||||||||||||
Gross Profit (excluding depreciation and amortization) | $ | 60,710 | $ | 50,442 | $ | 45,771 | $ | 50,615 | $ | 37,417 | ||||||||||
Adjusted EBITDA | $ | 33,456 | $ | 29,740 | $ | 29,093 | $ | 30,409 | $ | 17,536 | ||||||||||
Securities and Exchange Commission
February 19, 2013
Page 3
Had these revisions been included in our Form 10-K for the fiscal year ended December 31, 2011 the table on page 34 would have been presented as follows:
| Percentage Change | ||||||||||||||||||||
| Year Ended December 31, | 2011 to | 2010 to | ||||||||||||||||||
| 2011 | 2010 | 2009 | 2012 | 2011 | ||||||||||||||||
| (in thousands, except percentages) | ||||||||||||||||||||
Revenue | $ | 109,355 | $ | 92,921 | $ | 80,936 | 17.7 | % | 14.8 | % | ||||||||||
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Expenses: | ||||||||||||||||||||
Cost of revenue (excluding depreciation and amortization) | 48,645 | 42,479 | 35,165 | 14.5 | % | 20.8 | % | |||||||||||||
Depreciation and amortization | 14,584 | 14,983 | 12,554 | (2.7 | )% | 19.3 | % | |||||||||||||
Impairment of goodwill | — | — | 2,898 | — | % | (100.0 | )% | |||||||||||||
Selling and marketing | 2,276 | 2,103 | 2,187 | 8.2 | % | (3.8 | )% | |||||||||||||
General and administrative | 26,960 | 20,756 | 16,444 | 29.9 | % | 26.2 | % | |||||||||||||
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Total expenses | 92,465 | 80,321 | 69,248 | 15.1 | % | 16.0 | % | |||||||||||||
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Operating income | 16,890 | 12,600 | 11,688 | 34.0 | % | 7.8 | % | |||||||||||||
Other income (expense), net | (636 | ) | (19,207 | ) | (25,851 | ) | (96.7 | )% | (25.7 | )% | ||||||||||
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Income (loss) before income taxes | 16,254 | (6,607 | ) | (14,163 | ) | (346.0 | )% | (53.4 | )% | |||||||||||
Income tax expense | (6,502 | ) | (8,669 | ) | (5,457 | ) | (25.0 | )% | 58.9 | % | ||||||||||
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Net income (loss) | 9,752 | (15,276 | ) | (19,620 | ) | (163.8 | )% | (22.1 | )% | |||||||||||
Less: Net income (loss) attributable to non-controlling interests | 234 | 317 | 302 | (26.2 | )% | 5.0 | % | |||||||||||||
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Net income (loss) attributable to RigNet, Inc. stockholders | $ | 9,518 | $ | (15,593 | ) | $ | (19,922 | ) | (161.0 | )% | (21.7 | )% | ||||||||
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Other Non-GAAP Data: | ||||||||||||||||||||
Gross Profit (excluding depreciation and amortization) | $ | 60,710 | $ | 50,442 | $ | 45,771 | 20.4 | % | 10.2 | % | ||||||||||
Adjusted EBITDA | $ | 33,456 | $ | 29,740 | $ | 29,093 | 12.5 | % | 2.2 | % | ||||||||||
| 2. | To comply with Item 10 of Regulation S-K, please revise the caption for the non-GAAP measure “gross profit” to “gross profit excluding depreciation and amortization.” Additionally, reconcile it to the most comparable GAAP measure, “gross profit” that includes the allocation of applicable depreciation and amortization in cost of revenue. Please revise or advise. |
Response: In future filings, beginning with our December 31, 2012 Annual Report on Form 10-K, the Company will make your proposed revisionsto Item 6. Selected Financial Data andItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Securities and Exchange Commission
February 19, 2013
Page 4
Had these revisions been included in our Form 10-K for the fiscal year ended December 31, 2011 the following table would have been presented withinItem 6. Selected Financial Data,underNon-GAAP Financial Measures:
| Year Ended December 31, | ||||||||||||||||||||
| 2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
Reconciliation of Gross Profit to Gross Profit (excluding depreciation and amortization): | ||||||||||||||||||||
Gross Profit | $ | 46,890 | $ | 36,053 | $ | 33,130 | $ | 40,313 | $ | 28,384 | ||||||||||
Depreciation and amortization related to cost of revenue | 13,820 | 14,389 | 12,641 | 10,302 | 9,033 | |||||||||||||||
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Gross Profit (excluding depreciation and amortization) | $ | 60,710 | $ | 50,442 | $ | 45,771 | $ | 50,615 | $ | 37,417 | ||||||||||
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Had these revisions been included in our Form 10-K for the fiscal year ended December 31, 2011 the following table would have been presented withinItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,under the revised captionNon-GAAP Financial Measures,formerly titledAdjusted EBITDA (Non-GAAP Measureon page 40:
| Year Ended December 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
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Gross Profit | $ | 46,890 | $ | 36,053 | $ | 33,130 | ||||||
Depreciation and amortization related to cost of revenue | 13,820 | 14,389 | 12,641 | |||||||||
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Gross Profit (excluding depreciation and amortization) | $ | 60,710 | $ | 50,442 | $ | 45,771 | ||||||
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Note 14 – Segment Information, page F-25
| 3. | We note your response to comment six. Since your mobile rig-based equipment transition frequently between geographic regions, please expand your disclosure to explain how you determine geographic revenues sourced from your mobile rigs. Additionally, tell us your process for tracking and reporting locations of mobile rigs as of year-end. |
Response: In future filings, beginning with our December 31, 2012 Annual Report on Form 10-K, the Company will add the following disclosure to segment information:
Revenue is based on the location where services are provided or goods are sold. Due to the mobile nature of our customer base and the services we render, we work closely with our customers to ensure rig or vessel moves are closely monitored to ensure location of service information is properly reflected.
Securities and Exchange Commission
February 19, 2013
Page 5
For further clarification, RigNet’s process for tracking and reporting locations of mobile rigs or vessels is driven by our relationship with the customer and RigNet’s ability to monitor connectivity to the mobile asset. If a customer’s mobile asset is in-transit, connectivity will typically be lost and RigNet will be notified of the connectivity failure. RigNet uses this information as a control to ensure we are aware when an asset is mobilized. In addition, when mobile assets are moved between countries, which are under different satellites or network cloud, RigNet will be required to switch satellites and other network connections to ensure the communications are transferred properly.
* * * * *
As requested in the Comment Letter, RigNet hereby acknowledges that:
| • | RigNet is responsible for the adequacy and accuracy of the disclosure in the filing; |
| • | Staff comments or changes to disclosure in response to Staff comments do not foreclose the Commission from taking any action with respect to the filing; and |
| • | RigNet may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. |
If any member of the Staff has any questions concerning these matters or desires additional information or clarification, he or she should contact the undersigned at 281-674-0100.
Very truly yours,
RIGNET, INC.
Martin Jimmerson
Chief Financial Officer
| cc: | Kathryn Jacobson (Securities and Exchange Commission) |
Dean Suehiro (Securities and Exchange Commission)
Jonathan Groff (Securities and Exchange Commission)