Business Combinations | Note 2 – Business Combinations Auto-Comm and SAFCON On April 18, 2018, RigNet completed the separate acquisitions of Automation Communications Engineering Corp. (Auto-Comm) and Safety Controls, Inc. (SAFCON) for an aggregate purchase price of $6.3 million. Of this aggregate purchase price, RigNet paid $2.2 million in cash and $4.1 million in stock. Auto-Comm provides a broad range of communications services, for both onshore and offshore remote locations, to the oil and gas industry. Auto-Comm brings over 30 years of systems integration experience in engineering and design, installation, testing, and maintenance. SAFCON offers a diverse set of safety, security, and maintenance services to the oil and gas industry. Auto-Comm and SAFCON have developed strong relationships with major energy companies that complement the relationships that RigNet has established over the years. Auto-Comm and SAFCON are based in Louisiana. The assets and liabilities of Auto-Comm and SAFCON have been recorded at their estimated fair values at the date of acquisition. The excess of the purchase price over the estimated fair values of the underlying net tangible and identifiable intangible assets and liabilities has been recorded as goodwill. The Company’s allocation of the purchase price is preliminary as the amounts related to the identifiable intangible assets and effects of income taxes resulting from the transaction, are still being finalized. The goodwill of $1.0 million arising from the acquisition consists largely of growth prospects, synergies and other benefits that the Company believes will result from combining the operations of the Company and Auto-Comm and SAFCON, as well as other intangible assets that do not qualify for separate recognition, such as assembled workforce in place at the date of acquisition. The goodwill recognized is expected to be nondeductible for income tax purposes. The acquisition of Auto-Comm and SAFCON, including goodwill, is included in the Company’s condensed consolidated financial statements as of the acquisition date and is primarily reflected in the Systems Integration segment. Weighted Average 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 Intelie On March 23, 2018, RigNet completed its acquisition of Intelie Soluções Em Informática S.A (Intelie), for an estimated aggregate purchase price of $18.1 million. Of this aggregate purchase price, RigNet paid R$10.6 million (BRL) (or approximately $3.2 million) in cash, $7.3 million in stock and expects to pay $7.6 million worth of RigNet stock as contingent consideration earn-out, earn-out earn-out 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. The earn-out earn-out earn-out earn-out 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 and Internet-of-Things Weighted Average Fair Market Values (in thousands) Current assets $ 589 Property and equipment 73 Trade name 7 2,300 Technology 7 8,400 Customer relationships 7 320 Total identifiable intangible assets 11,020 Goodwill 10,744 Current liabilities (460 ) Deferred tax liability (3,825 ) Total purchase price $ 18,141 (a) (a) Includes $7.6 million in contingent consideration earn-out 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. The following table represents supplemental pro forma information as if the 2018 acquisitions had occurred on January 1, 2017. Three Months Three Months Six Months Ended Six Months Ended 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 $ (4,267 ) $ (4,171 ) $ (9,356 ) $ (6,159 ) Net loss per share attributable to 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 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 Weighted Average 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 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 (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 ® 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 Weighted Average Fair Market Values (in thousands) Property and equipment $ 18 Trade name 7 1,590 Technology 7 5,571 Customer relationships 7 332 Total identifiable intangible assets 7,493 Goodwill 4,591 Accrued expenses (100 ) Total purchase price $ 12,002 (a) (a) Includes $3.8 million in contingent consideration estimated as of the date of acquisition. 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 and Cyphre contributed $6.3 million of revenue and $4.7 million to net income for the six months ended June 30, 2018. Cyphre’s revenue and net loss were zero and $0.3 million, respectively, for the three and six months ended June 30, 2017. The following table represents supplemental pro forma information as if the 2017 acquisitions had occurred on January 1, 2017. Three Months Ended Six Months Ended 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 $ (3,227 ) $ (3,634 ) Net loss per share attributable to Basic $ (0.18 ) $ (0.20 ) Diluted $ (0.18 ) $ (0.20 ) |