Rignet Inc Annual Report 2018

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K (Mark One)☑ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934For the fiscal year ended December 31, 2018or ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934For the transition period from to Commission file number 001-35003 RigNet, Inc.(Exact name of registrant as specified in its charter) Delaware 76-0677208(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification No.)15115 Park Row Blvd, Suite 300Houston, Texas 77084-4947(Address of principal executive offices) (Zip Code)Registrant’s telephone number, including area code: (281) 674-0100Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredCommon Stock, $0.001 par value NASDAQ Global Select MarketSecurities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑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 Actof 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 suchfiling requirements for the past 90 days. Yes ☑ No ☐Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submitsuch files). Yes ☑ No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not containedherein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in PartIII of this Form 10-K or any amendment to this Form 10-K. ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting companyor an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerginggrowth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☑Non-accelerated filer ☐ 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 withany 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 Rule 12b-2 of the Act). Yes ☐ No ☑As of June 30, 2018, which was the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market valueof the registrant’s common stock, $0.001 par value per share (the “Common Stock”) held by non-affiliates of the registrant on such date wasapproximately $148.2 million. For purposes of this calculation, only executives and directors are deemed to be affiliates of the registrant. AtFebruary 28, 2019, there were outstanding 19,464,847 shares of the registrant’s Common Stock.DOCUMENTS INCORPORATED BY REFERENCEPortions of the Registrant’s definitive Proxy Statement for its 2019 Annual Meeting of Stockholders to be filed with the Commission within 120days of December 31, 2018 are incorporated herein by reference in Part III of this Annual Report. Table of ContentsTABLE OF CONTENTS Page PART I Glossary 3 Item 1 Business 6 Item 1A Risk Factors 20 Item 1B Unresolved Staff Comments 31 Item 2 Properties 31 Item 3 Legal Proceedings 31 Item 4 Mine Safety Disclosures 31 PART II Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 32 Item 6 Selected Financial Data 34 Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations 37 Item 7A Quantitative and Qualitative Disclosures about Market Risk 52 Item 8 Financial Statements and Supplementary Data 52 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 52 Item 9A Controls and Procedures 52 Item 9B Other Information 55 PART III Item 10 Directors, Executive Officers and Corporate Governance 56 Item 11 Executive Compensation 56 Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 56 Item 13 Certain Relationships and Related Transactions, and Director Independence 56 Item 14 Principal Accounting Fees and Services 56 PART IV Item 15 Exhibits, Financial Statement Schedules 57 Item 16 Form 10-K Summary 59 2Table of ContentsGlossary Adjusted EBITDA A non-GAAP measure. Net income (loss) plus interest expense, income tax expense (benefit), depreciationand amortization, impairment of goodwill, intangibles, property, plant and equipment, foreign exchangeimpact of intercompany financing activities, (gain) loss on sales of property, plant and equipment, net ofretirements, change in fair value of earn-outs and contingent consideration, stock-based compensation,acquisition costs, executive departure costs, restructuring charges, the GX dispute and non-recurring items.A reconciliation of Adjusted EBITDA to Net Income can be found in Item 6. Selected Financial Data onpage 35.AI Artificial IntelligenceApps Software ApplicationsASC Accounting Standards CodificationASU Accounting Standards UpdateAuto-Comm Automation Communications Engineering Corp., acquired in 2018, provides additional SystemsIntegration solutionsAVI Adaptive Video IntelligenceBOP Blow-out preventerBGAN Broadband Global Access NetworksCIEB Costs and estimated earnings in excess of billings on uncompleted contractsCyphre® Acquired in 2017, provides cybersecurity solutions with advanced enterprise data protectionDTS Acquired in 2017, increases solutions offerings in managed communications, IT, and disaster reliefECS Enhanced Cyber SecurityEDS Emergency disconnection sequenceEPC Engineering, Procurement and ConstructionESS Acquired in 2017, increases solutions offerings in SCADA and IoTExchange Act United States Securities Exchange Act of 1934, as AmendedFASB Financial Accounting Standards BoardFCC Federal Communications CommissionGX Inmarsat plc’s Global Express satellite bandwidth service 3Table of ContentsHTS High Throughput Satellite, providing greater bandwidth than traditional satellitesIntelie Intelie soluções em Informática SA, acquired in 2018, provides machine learning and real-time predictiveanalyticsIoT Internet-of-ThingsIP Internet ProtocolKPI Key performance indicatorsLIBOR London Interbank Offered RateLoRA Long Range AccessLOS Line-of-Sight microwave transmissionMCS Managed Communications ServicesMPLS Multiprotocol Label SwitchingNASDAQ NASDAQ Global Select Market, where RigNet’s common shares are listed for tradingNOC Network Operations CenterNPT Non-productive timeOPEC Organization of Petroleum Exporting CountriesOTT Software, IoT and other advanced solutions delivered Over-the-Top of the network layerPUC Public Utility CommissionROP Rate of penetrationSaaS Software as a ServiceSAB Staff Accounting BulletinSAFCON Safety Controls, Inc., acquired in 2018, provides additional safety, security, and maintenance servicesolutions for oil and gasSatellite bandwidth – Ka band Bandwidth typically operating in a frequency range of 27 – 40 gigahertzSatellite bandwidth – Ku band Bandwidth typically operating in a frequency range of 12 – 18 gigahertzSatellite bandwidth – C band Bandwidth typically operating in a frequency range of 4 – 8 gigahertzSatellite bandwidth – L band Bandwidth typically operating in a frequency range of 1 – 2 gigahertz 4Table of ContentsSCADA Supervisory Control and Data AcquisitionSEC United States Securities and Exchange CommissionSI Systems IntegrationSOC Security Operations CenterTECNOR Orgtec S.A.P.I. de C.V., d.b.a. TECNOR, acquired in March 2016, increases solutions offerings in MexicoThe Tax Act The Tax Cuts and Jobs ActU.S. GAAP Generally Accepted Accounting Principles in the United StatesVMS Video Management SystemVSAT Very Small Aperture Terminal satellite receiversWiMax Worldwide Interoperability for Microwave Access wireless broadband communication standard 5Table of ContentsPART IItem 1. BusinessFor convenience in this Annual Report on Form 10-K, “RigNet”, the “Company”, “we”, “us”, and “our” refer to RigNet, Inc. and itssubsidiaries taken as a whole, unless otherwise noted.OverviewWe are a global technology company that provides customized data and communications services. Customers use our private networks tomanage information flows and execute mission-critical operations primarily in remote areas where conventional telecommunications infrastructure iseither unreliable or unavailable. We provide our clients what is often the sole means of communications for their remote operations. On top of andvertically 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-time AI-backed dataanalytics platform to enhance customer decision making and business performance.We deliver advanced software, optimized industry solutions, and communications infrastructure that allow our customers to realize the businessbenefits of digital transformation. Historically, our primary focus has been on customers in the upstream exploration and production segment of theenergy industry, including offshore drilling rigs and production facilities. In recent years, we have expanded our services to include onshore drillingrigs and have increased our service offerings across the energy value chain to provide solutions to midstream and downstream customers where systemsintegration and IoT solutions are key elements. In addition, we have created channel partners around the world, creating opportunities to sell ourindustry-leading security, IoT, and machine-learning solutions outside of our traditional energy-focused markets.Our business operations are divided into the following segments: • Managed Communications Services (MCS). Our MCS segment provides remote communications, telephony and technology services foroffshore and onshore drilling rigs and production facilities, support vessels, and other remote sites. Our services are generally contractedwith terms that typically range from one month to three years and are billed as monthly recurring or usage-based fees. • Applications and Internet-of-Things (Apps & IoT). Our Apps & IoT segment provides applications over-the-top (OTT) of the networklayer including Software as a Service (SaaS) offerings such as cyber security, applications for safety and workforce productivity, a real-timemachine learning and AI data platform and other value-added solutions. This segment also includes the private machine-to-machine IoTdata networks. We generate revenue through software licenses, subscription fees, equipment sales and recurring network and usage-basedfees. • Systems Integration (SI). Our Systems Integration segment provides design and implementation services for customer telecommunicationssystems. 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 andmaintenance. Projects are bid on a fixed-cost or time and materials basis with revenue recognized on a percentage of completion basis. • Corporate. Corporate costs and eliminations primarily represent unallocated executive and support activities, interest expense, incometaxes and eliminations.For financial information about our reportable segments, see Note 12 — “Segment Information” in our consolidated financial statementsincluded in this Annual Report on Form 10-KManaged Communications Services (MCS)As of December 31, 2018, MCS represented 71.8% of our total revenues. We were the primary provider of remote communications andcollaborative services to approximately 500 customers reaching over 1,300 remote sites located in approximately 50 countries on six continents. Forthe year ended December 31, 2018, our revenue generated from countries outside of the U.S. represented 71.2% of MCS revenue. Key aspects of ourservices include: • a secure end-to-end global network to ensure greater network availability, enhanced network cyber security and higher Quality of Service(QoS) control to optimize latency sensitive business applications. 6Table of Contents • a multi-tenant network designed to accommodate multiple customer groups resident at a site, including drilling contractors, explorationand production operators and oilfield service providers; • a comprehensive bundle of network optimization value-added services, such as wide-area network acceleration, policy-based contentfiltering and firewall Wi-Fi hotspot access management, to maximize public-private sharing of shared assets for multiple tenants andcustomer groups at one site; • proactive network monitoring and management through Network Operations Centers (NOC) that actively manage network availability andserve as in-bound call centers for troubleshooting, 24 hours per day, 365 days per year; • maintenance and support through geographically deployed engineering and service support teams as well as warehoused spare equipmentinventories.Global MCS Site CountsWe report the number of sites serviced by MCS on a regular basis and currently define sites based on four categories which include OffshoreDrilling Rigs, Offshore Production sites, Maritime, and Other sites, which includes U.S. onshore drilling and production sites, completion sites,man-camps, remote offices, and supply bases, as well as offshore-related supply bases, shore offices, tender rigs, and platform rigs. The MCS site countdoes not include IoT sites. As of December 31, 2018, we provided MCS to a total of 1,323 U.S. and non-U.S. sites, a 13.0% increase from 1,171 sitesserved as of December 31, 2017. Site counts fluctuate with industry conditions and are influenced by oil price, customer capital spending, and otherfactors. When we provide services for multiple customers at one location, for example, to the drilling contractor, exploration and production operator,and other service companies, we count this as one site. The table below provides site count data as of December 31 of the respective year. We procure bandwidth from independent commercial satellite-services operators and terrestrial wireless and landline providers to meet the needsof our customers for end-to-end IP-based communications. This allows RigNet to provide hybrid network solutions which greatly improves networkup-time by using multiple and diverse sources of bandwidth. We generally own the network infrastructure and communications equipment we install atremote sites as well as equipment co-located in third-party teleport facilities and data centers, all of which we procure through various equipmentproviders. By owning the network infrastructure and communications equipment on the customer premises, we are better able to select the optimalequipment for each customer solution as well as ensure the quality of our services. 7Table of ContentsApplications & Internet-of-Things (Apps & IoT)Apps & IoT is our fastest growing segment, and is leading our claim to value for our customers’ digital transformation. In addition to alreadyrepresenting 10.8% of full year 2018 revenue, the value proposition from Apps & IoT is allowing us to gain share in the MCS market for energy.The energy sector has embraced “Digital Transformation”, a term that encompasses using technology to significantly reduce human operationalprocess time and increase operating margins. Digital transformation typically uses a combination of Industrial IoT (Internet of Things) combined withpowerful Artificial Intelligence (AI) backed predictive analytics to monitor and optimize processes in real-time.Through our Apps & IoT segment, we deliver a combination of turn-key network solutions, value-added services that simplify the managementof multiple communications needs, and digital accelerators that collect, secure and analyze operational intelligence data, allowing our customers toincrease margins and focus on core operations. As of December 31, 2018, Apps & IoT represented 10.8% of our total revenues and revenue generatedfrom countries outside of the U.S. represented 21.7% of Apps & IoT revenue. We sell our Apps & IoT services not only via direct sales, but also a seriesof channel partners around the world, which enables us to target customers in industry verticals where we have not established a focused salesforce.Apps & IoT services delivered over-the-top of the network layer include: • The Intelie Live and Intelie Planning platforms which provide advanced real-time predictive analytics and machine learning; • Software as a Service (SaaS) applications to enhance remote operations efficiency, safety or crew welfare including weathermonitoring primarily in the North Sea (MetOcean) and Adaptive Video Intelligence (AVI), including video analytics and a VideoManagement System (VMS); • An increasingly wide range of Enhanced Cyber Security (ECS) monitoring and protection services including a Security OperationsCenter (SOC), CyphreTM encryption, AI-backed intrusion detection, Conditional Access, and security ratings; • Machine-to-machine IoT networks such as: Supervisory Control and Data Acquisition (SCADA), Broadband Global Accessnetworks (BGAN), and custom Long-Range Access (LoRA).Intelie, our real-time machine learning platform, delivers value to the energy sector and has applications that improve performance andoperational safety, enhance well control, and reduce non-productive time (NPT). • Industry-proven algorithms transform sensor data into key performance indicators (KPIs) to reduce NPT, such as connection time fordrillpipe or slip-to-slip time. Another set of models can monitor and advise how to improve drilling rate of penetration (ROP), thespeed at which a drillbit drills through a formation. • Intelie improves safety performance using algorithms that verify whether operational policies are being followed, includingpressure testing and emergency disconnect sequence (EDS) checks. We can also corroborate that the correct personnel are on board,enhancing a customers’ ability to track personnel and respond during an emergency. • Intelie machine learning assists customers with optimizing well-cleaning procedures, the process of bringing up the cuttings thatthe drillbit generates while drilling. As an example of this delivers value, the faster the ROP, the more drilling cuttings aregenerated, which in turn can slow down the ROP as the bit gets stuck on its cuttings. • Essential equipment such as blow out preventers (BOP)s, top drives, and pumps send data to Intelie which models and monitorsequipment condition, enabling more predictive and assertive maintenance.Intelie has delivered significant results, helping drilling contractors and operators generate time and cost savings in their upstream operations.Examples include reducing NPT by more than $5.0 million per rig per year and generating around $0.5 million in savings per rig per year in early stagecondition-based maintenance. Intelie has also contributed as much as $3 million in software savings for a customer by eliminating extra software byconsolidating functionality. For one customer, the Intelie platform processed over 300,000 measurements per second at its peak, synthesizing anddisplaying actionable results to the end user. The increased linkage between IoT solutions and Intelie allows us to not only provide communications,but also to be directly involved in driving valuable business outcomes for our customers.RigNet’s IoT network supports over 10,000 different sites, predominantly in the U.S. A key element of our network, devices using the L-bandsatellite network, has grown substantially during 2018 to include over 5,000 active L-Band enabled IoT sites at the end of December 2018, consumingover 40 gigabytes per month of traffic, or roughly 13.7 megabytes per month per site.We believe the Apps and IoT segment is an important element of our long-term growth. 8Table of ContentsSystem Integration (SI)Due to our deep knowledge of the energy sector’s needs and wide range of expertise around critical communications in challengingenvironments, our clients also turn to us to build large network projects within their facilities. Solutions are delivered based on the customer’sspecifications, adhering to international industry standards and best practices. Project services may include consulting, design, engineering, projectmanagement, procurement, testing, installation, commissioning, and maintenance. Projects are bid on a fixed-cost or time and materials basis withrevenue recognized on a percentage of completion basis. As of December 31, 2018, Systems Integration represented 17.4% of our total revenues andrevenue generated from countries outside of the U.S. represented 12.0% of SI revenue.RigNet typically operates as a subcontractor on SI projects, working with other major Engineering, Procurement, and Construction (EPC)companies to deliver the project scope to the end customer. The business is both competitive and cyclical. The typical project length for our SI projectsis anywhere from less than one year to approximately two years. We measure the health of this business by our project backlog, or the amount ofrevenue secured subject to firm contract awards that will be recognized over the life of each project. We report our Project Backlog, shown in the tablebelow as of December 31 of the respective year, on a regular basis. As of December 31, 2018, our Project Backlog of $45.5 million had increased by75.0% from $26.0 million as of December 31, 2017. The table below provides backlog data as of December 31 for the respective years. Putting the parts back togetherRigNet’s three revenue generating operating segments can each stand alone as separate services, but increasingly, our global customers areseeing higher value in how these products stack together. This has the potential to create what we have termed a synergistic “Flywheel Effect,”illustrated in the graphic below. Customers who are embracing digital transformation are trying to unlock the operational technology potential ofIndustrial IoT. We believe this will create a proliferation of connected sensors, forming a large neural-network of data, wrapped in cyber security forprotection and interpreted through SaaS-based machine learning platforms. Customers will be able to accelerate their time to value by working with aset of services that are already vertically integrated and optimized to work under the most extreme of operating conditions. This can lower theirexecution risk for complex systems integrations and reduce upfront capital risk as a fully-managed SaaS service. For RigNet, the effect creates newstreams of revenue, while at the same time stimulates pull-through bandwidth demand and increased stickiness to our core network services illustratedin figure 4 below. 9Table of Contents Customer NeedsThe technology and remote telecommunications industries are highly dynamic and increasingly evolving with customer needs. We servecustomers with customized communications, applications and cybersecurity solutions that connect to remote locations via networks, driving demandfor reliable, managed communications services in a variety of environmental conditions. For several decades, our core customer base has primarilybeen off-shore and remote land oil and gas drillers, exploration and production operators, and oilfield service companies. As part of our growthstrategy, we seek to expand to other adjacent markets that share substantially similar technical requirements; these include: global enterprise,midstream pipelines, maritime, engineering and construction, disaster recovery services, banking and governments verticals.The customers we serve depend on maximum reliability, quality and continuity of products and services. Our customers also are generallygeographically dispersed and/or have remote operations. These customers are particularly motivated to use secure and highly reliable communicationsnetworks because they may require: • real-time data collection and transfer methods for safe and efficient operational coordination; 10Table of Contents • the ability to maintain safety standards and optimize performance; • data and network security designed to defend up to and against state-level actors’ threats • access to key decision makers to enable customers to maximize safety, operational results and financial performance; and • access to the internet to allow rig crews and other employees in remote areas to keep in communication with their friends and family and forentertainment.Our Customers, Their Industry, and Its Impact on RigNetIn 2018, almost all of RigNet’s revenue was derived from customers with some connection to the oil and gas industry. These included ourtraditional customers in the Upstream segment (drilling contractors, large integrated and independent oil and gas operating companies, and otheroilfield service and maritime support companies, etc.), as well as customers in the Midstream segment (pipelines, LNG plants, etc.) and largeEngineering, Procurement, and Construction companies working in the Downstream segment. Although no single customer accounted for 10.0% ormore of revenue in 2018, our top 5 customers accounted for 23.0% of our total revenue for 2018. The oil and gas industry is both cyclical and competitive. Our customers’ business plans and activities are significantly impacted by changes in,among other factors, oil and gas prices, global supply and demand for these commodities, geopolitical events, weather, and specific industrysub-segment dynamics (e.g., an oversupply of offshore drilling rigs.) Commodity prices are volatile and it is not unusual for our customers toexperience rapid increases or declines which can have both short- and long-term impacts on their spending patterns.After reaching their most recent peak in 2014, oil prices declined steeply, troughing below $30 per barrel in February 2016. In response, theindustry reduced both capital and operating expenses significantly, negatively impacting RigNet’s business. Recovery for the industry has been slowand difficult. However, 2018 saw improved activity levels compared to the previous year with shallow water jackup rig activity increasing more thandeepwater rig activity, driven by improved commodity prices and offshore production declines. Additionally, we saw more major construction projectsapproved for commencement, a factor which contributed to the significant increase in the Project Backlog of our SI business. While we expectconditions for the industry to continue to improve gradually, our long-term growth strategy does not rely solely on significant increases in globaloffshore drilling activity.Customer ContractsIn order to streamline the addition of new projects and solidify our position in the market, we have signed contracts with most customers.Generally, we prefer to sign long-term contracts with our customers to increase our confidence in our projected financial performance. Nevertheless, thenature of the oil and gas industry requires us to be flexible to ensure we meet the needs of our customers. The specific services being provided aredefined under individual service orders that generally have a term of one to three years for offshore customers with renewal options. Land-basedlocations are generally shorter term or terminable on short notice without penalty. Service orders are executed under the contracts for individual remotesites or groups of sites, and generally may be terminated early on short notice without penalty in the event of force majeure, breach of the agreement orcold stacking of a drilling rig.Our StrategyRigNet’s basic strategy remains unchanged: accelerate digital transformation for our customers by leveraging our core MCS business andintroducing new, value-added service solutions. The strategy is composed of three elements: • acquire new capabilities through selective mergers, acquisitions, or in-house development; • expand the scale and scope of our services within our primary industry vertical, energy; • expand into adjacent industry verticals. 11Table of ContentsAcquire New CapabilitiesIn 2017, we began to build new capabilities that would be complimentary both to our core MCS business and our improving SI business whileenabling us to deliver secure, mission-critical solutions to enable our customers to enjoy the benefits of their digital transformation efforts. The graphicbelow illustrates our significant strategic acquisitions, their timing, and our rationale for the transaction in terms of whether the acquired companyadded a capability, expanded our reach to more customers, or both. Cyphre was our first acquisition in 2017. As digital transformation efforts continue to touch every part of our customers’ businesses from offshorehigh-pressure blowout preventers to onshore operations planning, data security has become critical and Cyphre expanded our cybersecuritycapabilities with advanced enterprise data protection by leveraging hardware-based encryption.We acquired two additional companies in 2017, ESS and DTS. ESS expanded our product offering, added to our existing midstream SCADAcustomer portfolio, and strengthened our IoT market position. DTS enhanced our comprehensive communications and IT services to the onshore,offshore, and maritime industries, as well as disaster relief solutions to global corporate clients.In 2018, we completed the acquisition of Intelie. Intelie is a real-time, predictive analytics company that combines operational expertise with amachine learning approach. Intelie facilitates innovation via Intelie Pipes, a distributed query language with a complex event processor to aggregateand normalize real-time data from a myriad of data sources. The Intelie platform 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.Finally, in 2018, we completed the separate, but related, acquisitions of Auto-Comm and SAFCON. Auto-Comm provides a broad range ofcommunications services to the oil and gas industry for both onshore and offshore remote locations. Auto-Comm brings over 30 years of systemsintegration experience in engineering and design, installation, testing, and maintenance. SAFCON offers a diverse set of safety, security, andmaintenance services to the oil and gas industry. Auto-Comm and SAFCON have developed strong relationships with major energy companies thatcomplement the relationships that we have established over the years.We believe that the capabilities acquired through this set of acquisitions enable us to provide a unique set of solutions to our customers that willhelp them to realize the benefits of their digital transformation efforts and provide us with a differentiating competitive advantage. We expect to beselective about merger and acquisition (M&A) activity in the future. We believe that we have largely acquired the necessary capability set and thatnetworks benefit from scale. As such further M&A activity will likely be more focused on expanding our presence within the Energy industry and/orentering new industries where secure, remote communications are required. 12Table of ContentsExpand the scale and scope of our servicesOur market presence and proven quality of service offer significant organic growth opportunities in energy segments adjacent to upstream wherewe are well positioned to deliver remote communications solutions.In the MCS segment, we seek to leverage our current strong market position in drilling rigs, production facilities, and support vessels to growadditional share. Because of established relationships with our customers, reliable and robust service offerings and high-quality customer service, webelieve that we are well-positioned to capture new build rigs that our customers add to their fleets as well as stacked rigs that are reactivated. We alsoseek to organically gain market share against our competitors. We continue to grow our network as well. In 2018, we committed to further invest in ourGulf of Mexico communications infrastructure, which we believe is the largest over-water microwave-based network in the world. This upgrade willadd 4G LTE services and 5G capabilities to the existing network to provide both enhanced fixed and mobile services to our customers. This LTEnetwork when complete will be designed to support a theoretical coverage area of up to approximately 45,000 square miles for B2B applications andup to approximately 30,000 square miles for consumer applications. Furthermore, as the onshore unconventional drilling and production industry hascontinued to grow, we have expanded our services to include not only onshore drilling rigs, but other onshore oilfield service providers.We also intend to expand our Apps & IoT market share by bundling our new capabilities, including machine learning and cybersecurity, with ourMCS offerings for both existing and new customers. Our acquisition of Intelie in 2018 enabled us to offer new solutions to help customers across thevalue chain continue to focus on improving their operational and financial performance. Through Cyphre, we assist our customers in protecting theirmission-critical data both onshore and offshore. Furthermore, we continue to develop additional applications via our internal development team,including AVI, CrewConnect™, and other solutions which deliver increased value to our customers. We have also continued to grow our presence inthe IoT market, particularly in energy’s midstream segment, where our robust, bandwidth-optimized applications enable customers to safely, reliably,and efficiently monitor and manage their remote sites and networks.We continue to expand our Systems Integration market share by pursuing new Systems Integration customers and bids for projects globally toaddress the growing demand for buildout of large capital projects. We expect to continue to target traditional upstream opportunities, such as newfixed production platforms or onshore operating shorebases, as well as expanding our opportunity set to include new FPSOs and midstream projects,such as remote LNG liquefaction facilities. Additionally, our Apps & IoT capabilities are opening opportunities to introduce our machine learning andother solutions to our customers on these projects, potentially leading to pull-through business where we not only provide our SI solution, but possiblya bundle which includes managed communications and applications.Expand into adjacent industry verticalsWe believe revenue diversity is desirable in terms of product offering as well as industry exposure. We also believe that networks benefit fromscale regardless of which end markets we serve with our managed communications product. As such, we will continue to look for and reviewopportunities in other remote communications market adjacencies that offer significant opportunities for growth and where we are well positioned totake advantage of these opportunities such as aviation, government, and mining. In some cases, we may determine that M&A activity is the mostefficient way to enter a new vertical and we will look for targets which could provide both revenue and cost synergies as well as offer an opportunity toleverage our Apps & IoT solutions, many of which, including Intelie and Cyphre, are not energy-specific. However, we may not be able to identifytargets which meet our investment criteria. In this case, we may choose to pursue opportunities in a new vertical by adding personnel who bring bothexpertise and business relationships.Competitive StrengthsAs a global technology company that provides customized communications services, applications, real-time machine learning, and cybersecuritysolutions, our competitive strengths include: • mission-critical services delivered by a trusted provider with global operations; • leading edge technology with proven track record in-market; • high-quality customer support with full time monitoring and regional service centers; • scalable systems using standardized equipment that leverages our global infrastructure; • customized Systems Integration solutions provided by expert telecoms systems engineers; 13Table of Contents • flexible, provider-neutral technology platforms; • long-term relationships with leading companies in the oil and gas, maritime, pipeline and engineering and construction industries; and • ability to design and implement a broad range of communication solutions using a range of frequencies and modes of communication.Mission-critical services delivered by a trusted provider with global operations: Our longstanding relationships with the customers we serveprovide us with an in-depth understanding of the mission-critical needs of our customers that enables us to tailor our services to their requirements. Ournetwork availability and responsive customer service, along with the high switching costs associated with changing remote communications providers,provide us with a high rate of customer retention. Our global presence allows us to serve our clients around the world, except where governmentrestrictions may apply. Our global terrestrial network also allows us to provide quality of service to prioritize various forms of data traffic for a moreeffective way to prioritize network traffic. Our ability to offer our customers global coverage sets us apart from regional competitors and allows us tomatch the breadth of their global operations and speed of deployment. The addition of Cyphre allows us to offer state-of-the-art encryption andnetwork security services for the data communications necessary to safely and efficiently manage remote operations. In addition, our OTT offeringsallow us to leverage our network to provide additional offerings for safety, business productivity improvement, and crew comfort.Leading edge technology with proven track record in-market: Real-time predictive analytics software that works well in highly-connectedurban areas and cloud computing, does not work the same in remote locations in high-latency, high-packet loss environments. With over 15 years ofdesigning and managing remote communications in the RigNet brand, 40 years in system integrations design and testing, and over 10 years ofexperience with the Intelie platform (with now 7 years offshore experience), we have developed expertise that our customers lack.High-quality customer support with full-time monitoring and regional service centers: Our global end-to-end owned and operated networkallows us to provide high quality customer care by enabling us to fully monitor our network. We can easily and rapidly identify and resolve anynetwork problems that our customers may experience. As of December 31, 2018, we had 33 service operations centers and warehouses to support andservice our customers’ remote sites. We maintain field technicians as well as adequate spare parts and equipment in these service operations centers.Our Global Customer Care (GCC) team staffs our Network Operations Center (NOC) and Security Operations Center (SOC) 24 hours per day, 365 daysper year and provides engineering, service delivery, and change management to customers globally. We provide non-stop, end-to-end monitoring andtechnical support for every customer. This proactive network monitoring allows us to detect problems instantly and keep our services running atoptimum efficiency. Fully managed technology is a key reason why we can support solutions that deliver high performance and new technologies thatimprove productivity.Scalable systems using standardized equipment that leverages our global infrastructure: We have built our global satellite and terrestrialnetwork with a sufficient amount of flexibility to support our growth without substantial incremental capital investment to our network.. Ourknowledge and capabilities can be applied to remote sites located anywhere in the world. We generally install standardized equipment at each remotesite, which allows us to provide support and maintenance services for our equipment in a cost-efficient manner. Not all of the components of equipmentthat we install at each site are the same, but the components that vary are limited in number and tend to be the same for sites located in the samegeography. As of December 31, 2018, we contracted capacity from 43 satellites that are co-located at 26 teleports and 25 datacenters worldwide inorder to provide our end-to-end solutions. By leasing rather than owning our network enablers and owning the on-site equipment at each site, we areable to both minimize the capital investment required by the base network infrastructure and maintain the flexibility to install high quality equipmentat each site tailored to its locale and environmental conditions. We do own and manage the IP layer end-to-end. The standardized nature of ourequipment minimizes execution risk, lowers maintenance and inventory carrying costs, and enables ease of service support. In addition, we are able toremain current with technology upgrades due to our back-end flexibility. Our product and service portfolio offers best-in-class technology platformsusing the optimal suite of communications and networking capabilities for customers.Customized Systems Integration solutions provided by expert telecoms systems engineers: Through our acquisition of Nessco Group HoldingsLtd (Nessco) in 2012, Inmarsat’s Enterprise Energy business unit in 2014, TECNOR in 2016, and Auto-Comm and SAFCON in 2018, we provideglobal customized Systems Integration solutions through our SI business. As the demand for additional telecommunications products and telecomssystems increase with each new technological advance, the need for well-designed, efficient and reliable network infrastructures becomes increasinglyvital to customers. Our solutions are custom designed, built and tested by expert engineers based on the customer’s 14Table of Contentsspecifications and requirements, as well as international industry standards and best practices. For those customers requiring reliable remotecommunications services, maintenance and support services and customized solutions for their network infrastructures, RigNet provides aone-stop-shop to satisfy these demands.Flexible, provider-neutral technology platform: Because we procure communications connections and network equipment from third parties, weare able to customize the best solution for our customers’ needs and reduce our required fixed capital investments. We aim to preserve the flexibility toselect particular service providers and equipment so that we may access multiple providers and avoid downtime if any of our initial providers were toexperience any problems. By procuring bandwidth from a variety of communications providers instead of owning our own satellites, we are able tominimize capital investment requirements and can expand our geographic coverage in response to customers’ needs with much greater flexibility.Long-term relationships with leading companies in the oil and gas, maritime, pipeline and engineering and construction industries: We haveestablished relationships with some of the largest companies in the oil and gas, maritime, pipeline and engineering and construction industries. Someof our key customers are the leading drilling contractors around the world, with combined fleets of hundreds of rigs, as well as leading oil and gas,oilfield service, maritime, pipeline and engineering and construction companies. In most cases, these customers have high standards of service thatfavor strategic providers such as RigNet and work in partnership with us to serve their remote operations.The ability to design and implement a broad range of communication solutions using a range of frequencies and modes of communication: Wehave the ability to design and implement a broad range of communication solutions using a range of frequencies and modes of communication. Thesemodes of communication include wired, wireless satellite Ku, Ka, C and L frequency bands, wireless WiMAX and Line-of-Sight (LOS) microwave, 3Gand 4G LTE services, and 5G-capabilities. This range of communications solutions allows us to offer competitive and reliable communicationssolutions in a broad range of remote geographic locations where our customers operate. This helps us meet our customers’ requirements for choosingtheir provider(s) based on network availability while factoring in price.SuppliersAlthough we have preferred suppliers of technology, telecommunications and networking equipment, nearly all technology utilized in oursolutions is available from more than one supplier.In addition, we do not rely on one satellite provider for our entire satellite bandwidth needs except for certain instances in which only onesatellite bandwidth provider is available in an operating location, which is typically due to licensing restrictions or where only one satellite providercan offer a particular bandwidth. This approach generally allows us flexibility to use the satellite provider that offers the best service for specific areasand to change providers if one provider experiences any problems. 15Table of ContentsCompetitionThe technology and remote telecommunications industry is highly competitive. We expect competition in the markets that we serve to persist,intensify and change. We face varying degrees of competition from a wide variety of companies, including potential new entrants from providers toadjacent vertical markets and from forward integration by some of our suppliers deeper in the industry value chain, since successful service and systemdevelopment is not necessarily dependent upon substantial financial resources.Our primary global competitor in MCS is Speedcast International Ltd. Both Panasonic, through its ITC Global subsidiary, and Tampnet havebegun to expand their presence as active providers of communications services to the oil and gas, mining and maritime markets. We also compete withregional competitors in the countries in which we operate. Specifically, in our U.S. onshore operations, we face competition from: wireless networkproviders, drilling instrumentation providers, living quarters companies, and other pure-play providers like us.Our customers generally choose their provider(s) based on the quality and availability of the service and the ability to restore service quicklywhen there is an outage. Pricing and breadth of service offerings are also factors. Our customers depend on maximum availability, quality andcontinuity of products and service. Established relationships with customers and proven performance serve as significant barriers to entry.While we experience competition in our markets, we believe that our Apps & IoT offerings are a key differentiator that strategically aligns withour customers’ need to achieve digital transformation and business synergy goals. However, as our serviceable market has seen significant expansiondue to our organic and inorganic growth in Apps & IoT, so has our competitor list. Our competitors now include IBM, Microsoft, Google, KongsbergGruppen ASA and other smaller pure-play providers.Our customers choose the accelerated speed and value created by a vertically aligned stack. We believe that we are unique in our verticallyoffering both Apps & IoT offerings over-the-top of our MCS offering. We call this unique value proposition created by our vertically aligned stack the“vertical of one”.EmployeesAs of December 31, 2018, we had approximately 604 full time employees consisting of 316 in North America, 113 in Latin America, 104employees in Europe/Africa and 71 employees in the Middle East and Asia Pacific.Geographic InformationSee Note 12 — “Segment Information,” in our consolidated financial statements included in this Annual Report on Form 10-K for moreinformation regarding revenues and assets attributable to our domestic and international operations.Other InformationCorporate Structure and HistoryWe were incorporated in Delaware on July 6, 2004. Our predecessor began operations in 2000 as RigNet, Inc., a Texas corporation. In July 2004,our predecessor merged into us. The communications services we provide to the offshore drilling and production industry were established in 2001 byour predecessor, who launched initial operations in the Asia Pacific region. We have since evolved into one of the leading global providers of remotecommunications services.Principal Executive OfficesOur corporate headquarters is located at 15115 Park Row Blvd, Suite 300, Houston, Texas. Our main telephone number is +1 (281) 674-0100. 16Table of ContentsCompany Website and Available InformationThe Company’s internet website is www.rig.net. The information found on our website is not incorporated into this Annual Report on Form 10-K.The Company makes available free of charge on its website Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (theExchange Act). This information can also be found on the SEC website at www.sec.gov.In addition, in the “Governance” section of the Investors page on our web site, we make available our code of ethics and business conduct, ourcorporate governance guidelines, the charters for our audit, compensation, and corporate governance and nominating committees and various othercorporate governance policies and documents.Smaller Reporting Company StatusIn June 2018, the SEC issued Release 33-10513; 34-83550, Amendments to Smaller Reporting Company Definition, which changed thedefinition of a smaller reporting company in Rule 12b-2 of the Exchange Act. Under this release, the new thresholds for qualifying are (1) public floatof less than $250 million or (2) annual revenue of less than $100 million and public float of less than $700 million (including no public float). Underthe amended rule, RigNet now qualifies as a smaller reporting company. A smaller reporting company may choose to comply with scaled or non-scaledfinancial and non-financial disclosure requirements on an item-by-item basis. The Company may determine to provide scaled disclosures of financialor non-financial information in future quarterly reports, annual reports and/or proxy statements if it remains a smaller reporting company under SECrules.Forward-Looking StatementsThis Annual Report on Form 10-K contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, asamended, and Section 21E of the Exchange Act, as amended, that are subject to a number of risks and uncertainties, many of which are beyond theCompany’s control. These 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 needs and expectations regarding cash flow from operations and capital expenditures; • our expectations regarding the deductibility of goodwill for tax purposes; • our strategy and acquisitions; • our ability to develop and market additional products and services; • our ability to manage and grow our business and execute our business strategy, including developing and marketing additional Apps &IoT solutions, expanding our market share, increasing secondary and tertiary customer penetration at remote sites, enhancing systemsintegration and extending our presence into complementary remote communication segments through organic growth and strategicacquisitions; • our ability to pursue, consummate and integrate merger and acquisition opportunities successfully; • the GX dispute; • the amount and timing of contingent consideration payments arising from our acquisitions; • our cost reduction, restructuring activities and related expenses; and • our financial performance, including our ability to expand Adjusted EBITDA through our operational leverage 17Table of ContentsForward-looking statements may be found in Item 1. “Business;” Item 1A. “Risk Factors;” Item 7. “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” and other items within this Annual Report on Form 10-K. In some cases, forward-looking statementscan 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 and other comparable terminology that conveyuncertainty of future events or outcomes. All of these types of statements, other than statements of historical fact included in this Annual Report onForm 10-K, are forward-looking statements.The forward-looking statements contained in this Annual Report on Form 10-K are largely based on Company expectations, which reflectestimates and assumptions made by management. These estimates and assumptions reflect management’s best judgment based on currently knownmarket conditions and other factors. Although the Company believes such estimates and assumptions to be reasonable, they are inherently uncertainand involve a number of risks and uncertainties beyond its control. In addition, management’s assumptions may prove to be inaccurate. The Companycautions that the forward-looking statements contained in this Annual Report on Form 10-K are not guarantees of future performance, and it cannotassure any reader that such statements will be realized, or the forward-looking statements or events will occur. Risks, uncertainties and other factors thatmay cause actual results to differ materially from those expressed or implied in the forward-looking statements include, without limitation: • the effect of economic conditions in the oil and gas industry, including fluctuations in commodity prices and the level of oil and gasexploration, development and production; • the outcome of legal proceedings in which the Company is a party, including the GX dispute; • changes in the demand for our services and solutions; • the availability of labor at reasonable prices; • changes in laws and regulations in the telecommunications, technology or oil and gas industries; • our ability to renew, extend or retain our contracts or to obtain new contracts with significant customers; • our lack of long-term, committed-volume purchase contracts with our customers; • increased competition and competitive factors in the markets in which we operate; • the concentration of our customer base as well as our dependence on a limited number of key customers; • our ability to protect our intellectual property and the cost of doing so; • our ability to extend our presence into other verticals and complementary remote communication segments; • our ability to increase secondary and tertiary customer penetration at remote sites; • the risk that we fail to fully realize the potential benefits of or have difficulty in integrating the companies we acquire or have alreadyacquired; • our ability to develop and market additional products and services; • the possibility that we or our third-party providers may violate the complex regulatory schemes, including anti-corruption laws, in foreigncountries in which we operate; • the impact on our business, or the business of our customers, as a result of credit rating downgrades and fluctuating interest rates; • changes in currency exchange rates; • our ability to comply with the financial covenants in our credit agreement and the consequences of failing to comply with such financialcovenants; • 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; • the effect of changes in political conditions in the U.S. and other countries in which we operate; 18Table of Contents • the possibility that we, or our third-party providers, may experience equipment failures, natural disasters, cyber-attacks or terrorist attacks; • the possibility that we experience failures in compliance with applicable consumer-protection and date privacy laws and regulations; • the possibility that we are unable to operate in certain foreign countries due to export control laws; and • other risks and uncertainties described under “Item 1A. Risk Factors” and other sections in this Annual Report on Form 10-K and asincluded in our other filings with the U.S. Securities and Exchange Commission.If one or more of these factors materialize, or if any underlying assumptions prove incorrect, our actual future results, performance orachievements may vary materially from any projected future results, performance or achievements expressed or implied by these forward-lookingstatements. The forward-looking statements speak only as of the date made, and other than as required by law, the Company undertakes no obligationto publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.Government RegulationThe following is a summary of the regulatory environment in which we currently operate and does not describe all present or proposedinternational, federal, state and local legislation and regulations affecting the communications industry, some of which may change the way theindustry operates as a result of administrative or judicial proceedings or legislative initiatives. We cannot predict the outcome of any of these mattersor the impact on our business.The telecommunications industry is highly regulated. Most of the services we provide in our MCS segment require licenses or approvals fromregulatory authorities in various countries. In the United States, we are subject to the regulatory authority of the Federal Communications Commission(FCC). Regulation of the telecommunications industry continues to change rapidly. Our U.S. services are currently provided on a private carrier basis,rather than a common carrier basis, and are therefore subject to lighter regulation under the U.S. Communications Act of 1934, as amended (the Act),and the regulations of the FCC. If the FCC determines that the services of RigNet or its subsidiaries constitute common carrier offerings subject tocommon carrier regulations, we may be subject to significant costs to ensure compliance with the applicable provisions of those laws and regulations.We may be subject to enforcement actions including, but not limited to, fines, cease and desist orders, or other penalties if we fail to comply with allapplicable requirements.For our U.S. business we maintain licenses with rights to the electromagnetic spectrum, including fixed microwave licenses, very small apertureterminal (VSAT) earth station licenses, various private and commercial mobile radio service licenses, broadband radio licenses and contracts forwireless communications service licenses. Failure to maintain appropriate licenses could subject RigNet to fines imposed by the FCC. In 2015 weparticipated in FCC Auction 97 and won AWS-3 spectrum. Subsequently in 2018, we purchased previously auctioned 700MHz spectrum from a largecarrier. In order to maintain our spectrum, we must build a network to support it. If we fail to meet construction deadlines associated with these networkbuild outs, we could be subject to forfeiture of the electromagnetic spectrum.As an evolving non-dominant international and domestic carrier under the Act, among other requirements, RigNet must pay various feesincluding contribution of a percentage of its revenues from telecommunications services to the FCC’s Universal Service Fund (USF) and other federalprogram funds to subsidize certain user segments, file various reports, and comply with rules that protect customer information and the processing ofemergency calls. RigNet is also subject to the Communications Assistance for Law Enforcement Act (CALEA) and associated FCC regulations thatrequire telecommunications service providers and VoIP providers to configure their networks to facilitate electronic surveillance by law enforcementauthorities.Like the FCC, the state public utility commissions (PUCs) impose various regulatory fees, universal service requirements, reporting and priorapproval requirements for transfer or assignments. The FCC and state PUCs have jurisdiction to hear complaints regarding the compliance ornon-compliance with these and other carrier requirements of the Act and the FCC’s rules, and similar state laws and regulations. 19Table of ContentsIf the FCC or any state PUC determines that RigNet has not complied with federal and/or state regulatory requirements, we may be subject toenforcement actions including, but not limited to, fines, cease and desist orders, license revocation, or other penalties.Several proceedings pending before the FCC have the potential to significantly alter our USF contribution obligations. The FCC is considering:(1) changing the basis upon which USF contributions are determined from a revenue percentage measurement, as well as increasing the breadth of theUSF contribution base to include certain services now exempt from contribution; (2) the classification of MPLS; and (3) the classification of variousIP-enabled services. Adoption of these proposals could have a material adverse effect on our costs of providing service. We are unable to predict thetiming or outcome of these proceedings. We cannot predict the application and impact of changes to the federal or state USF contribution requirementson the communications industry generally and on certain of our business activities in particular.We must generally register to provide our telecommunications services in each country in which we do business. The foreign laws andregulations governing these services are often complex and subject to change with short or no notice. At times, the rigs or vessels on which ourequipment is located and to which our services are provided will need to operate in a new location on short notice and we must quickly makeregulatory provisions to provide our services in such countries. Failure to comply with any of the laws and regulations to which we are subject mayresult in various sanctions, including fines, loss of authorizations and denial of applications for new authorizations or for renewal of existingauthorizations.We must comply with export control laws and regulations, trade and economic sanction laws and regulations of the United States and othercountries with respect to the export of telecommunications equipment and services. State and local regulation additionally apply to certain aspects ofour business. We are also subject to various anti-corruption laws, including the Foreign Corrupt Practices Act, that prohibit the offering or givinganything of value to government officials for the purpose of obtaining or retaining business or for gaining an unfair advantage.Item 1A. Risk FactorsFactors that could materially affect our business, financial position, operating results or liquidity and the trading price of our common stock aredescribed below. This information should be considered carefully, together with other information in this report and other reports and materials we filewith the SEC.A large portion of our business fluctuates with the level of global oil and natural gas exploration, development and production, as a large portionof our customers are energy related.Demand for our remote communication services and collaborative applications depends on our customers’ willingness to make operating andcapital expenditures to explore, develop and produce oil and natural gas. Our business will suffer if these expenditures decline. Our customers’willingness to explore, develop and produce oil and natural gas depends largely upon prevailing market conditions that are influenced by numerousfactors over which we have no control, including: • the supply, demand and price expectations for oil and natural gas; • capital expenditure levels of producers of oil and natural gas and drillers; • the addressable market and utilization rate for drilling rigs and oilfield services; • the ability of the Organization of Petroleum Exporting Countries (OPEC) or non-OPEC countries to influence and maintain productionlevels and pricing; • the worldwide political, regulatory and economic environment; • the degree to which alternative energy sources displace oil and natural gas; and • advances in exploration, development and production technology.Oil and gas prices are volatile, and the oil and gas business is cyclical. When prices are perceived as being too low, to generate acceptablereturns, companies reduce expenditures for exploration and production. In 2018, oil prices experienced heightened volatility, with prices fallingsignificantly in the last quarter of the year. As a result, we have seen a material decline in the demand for our products and services and significantpressure on the prices we can charge. 20Table of ContentsFurthermore, our customers have experienced declines in their cash flows which has led to delays in payment, or nonpayment, for our products andservices. Commodity price declines and increased volatility have particularly affected our customers’ budgets for offshore capital investments andexpenditures which has had a material and adverse effect on our addressable market. These conditions have had, and may continue to have, a materialadverse effect on our financial condition, results of operations and cash flows.The Global Xpress (GX) dispute may have a material adverse effect on us.See a more complete discussion of the GX dispute in Note 9 of the Notes to Consolidated Financial Statements and in Item 3, Legal Proceedingsof this Annual Report on Form 10-K.As previously announced on December 3, 2018, the International Centre for Dispute Resolution arbitration panel found that RigNet’stake-or-pay obligation for GX service had commenced and that RigNet owed Inmarsat $50.8 million, subject to any offsets from RigNet’scounterclaims in Phase II of the arbitration. This is an interim ruling, and RigNet is not required to pay any amounts to Inmarsat until the panel rules onPhase II counterclaims. The Company currently expects a Phase II ruling in the second half of 2019. As of December 31, 2018, RigNet has an accruedliability of $50.8 million related to the GX dispute loss contingency.Our assessment of our potential loss contingency may change in the future due to developments at the arbitration, and such reassessment couldlead to the determination that a greater loss contingency is probable, which could have a material adverse effect on our business, financial conditionand results of operations. Amounts of estimated loss contingency accruals as disclosed in this Annual Report on Form 10-K or elsewhere are based oncurrently available information and involve elements of judgment and significant uncertainties. No assurance can be given as to the ultimate outcomeof the GX dispute, and the ultimate outcome may differ from the estimated amount.If our efforts to reduce the award through our Phase II counterclaims are unsuccessful, payment of an award to Inmarsat will reduce our liquidity.Although we have secured the first amendment to the third amended and restated credit agreement (Updated Credit Agreement), if we do not meet ourplanned financial targets, we could not have sufficient capacity under the Updated Credit Agreement to pay the award. Our Updated Credit Agreementrequires us to have a consolidated leverage ratio of 3.25 to 1.00 in the quarter that RigNet makes a final irrevocable payment of all monetary damagesfrom the GX dispute. No assurances can be made that we will have sufficient leverage ratio to draw on the Updated Credit Agreement and pay a finalaward.Many of our contracts have arbitration clauses, which may limit our ability to appeal adverse rulings.As many of our contracts have arbitration clauses, we are and can be subject to arbitration proceedings. Arbitration findings are typicallybinding, which limits our ability to appeal adverse rulings. Adverse arbitration rulings can harm our business, financial conditions and results ofoperations.Our industry is characterized by rapid technological change, and if we fail to keep pace with these changes or if access to telecommunications inremote locations becomes easier or less expensive, our business, financial condition and results of operations may be harmed.Recently some remote communications providers are offering the use of LTE and high-throughput satellite (HTS) service, instead of or inaddition to the conventional Ku-band and C-band satellite space segments used today. Our business may be harmed if our competitors are moresuccessful than us in introducing LTE and or HTS services to meet customer needs.If alternative telecommunications services to remote locations become more readily accessible or less expensive, our business will suffer. Newdisruptive technologies could make our VSAT-based networks or other services obsolete or less competitive than they are today, requiring us to reducethe prices that we are able to charge for our services or causing us to undergo expensive transitions to new technologies. We may not be able tosuccessfully respond to new technological developments and challenges or identify and respond to new market opportunities, services or solutionsoffered by competitors. In addition, our efforts to respond to technological innovations and competition may require significant capital investmentsand resources. Furthermore, if we invest either organically or through Mergers and Acquisitions in a new technology and any such technology is notsuccessful, our business, financial conditions and results of operations may be harmed. 21Table of ContentsFailure to obtain and retain skilled personnel could impede our business and growth strategy.Our operations depend on a highly qualified executive, sales, technical, development, service and management team. We face particularly highcompetition for cybersecurity and engineering talent. Failure to attract, recruit, retain and develop qualified personnel could have a material adverseeffect on our business, financial condition and results of operations.In the event that our cyber security measures fail or are otherwise inadequate, our systems or reputation may be damaged which could harm ourbusiness, financial conditions and results of operations. Further, failure to comply with data privacy requirements applicable to us could result incostly regulatory enforcement actions and the imposition of significant penalties.We rely heavily on information systems to run our business and our customers rely on our networks and security measures in running theirbusinesses. Given that our customer’s own and operate critical infrastructure, the nature of cybersecurity threats are advanced and persistent. There canbe no assurance that the systems we have designed to prevent or limit the effects of cyber incidents or attacks will be sufficient to prevent or detectsuch attacks. If such incidents or attacks do occur, they could have a material impact on our systems including degradation of service, servicedisruption, excessive call volume to call centers and damage to our facilities, equipment and data. In addition, we could be adversely affected by thetheft or loss of confidential customer data or intellectual property. With the acquisition of Cyphre, we now market our cybersecurity services as anexpertise. A successful cyberattack against us or one of our cybersecurity customers may create negative publicity resulting in reputation or branddamage with customers. We may be required to expend significant resources to protect against these events or to alleviate problems, includingreputational harm, customer loss and litigation, caused by these events or the failure or inadequacy of our security systems, which could have amaterial adverse effect on our business, financial condition and results of operations.Further, the regulatory framework for privacy issues worldwide is complex and evolving, and we believe it is likely to remain uncertain for theforeseeable future. Many federal, state and foreign government entities and agencies have adopted or are considering adopting laws and regulationsregarding the collection, use and disclosure of personal information. In the United States, these include rules and regulations promulgated under theauthority of the Federal Trade Commission and state breach notification laws. Internationally, certain of the jurisdictions in which we operate haveestablished their own data security and privacy legal framework with which we must comply. For example, the European Union has issued the GeneralData Protection Regulation (GDPR), which applies to anyone doing business in Europe. In general, GDPR sets a higher bar for privacy compliance,including new data subject rights, new mandatory security breach notification requirements, requirements to conduct data protection impactassessments and extensive record keeping requirements. Failure to comply with GDPR can have significant consequences, including substantial finesand reputational damage. We continue to analyze the GDPR in respect of its burden and applicability to our global business operations. We may fail tocomply with any of these requirements, and compliance with these requirements may increase our compliance burden and costs.We have made and expect to continue to make selective acquisitions as a primary component of our strategy. We may not be able to identifysuitable acquisition candidates or consummate acquisitions on acceptable terms, or we may be unable to successfully integrate acquisitions,which could disrupt our operations and adversely impact our business and operating results.A primary component of our strategy has been to acquire businesses to grow our product and service offerings. We intend to continue to pursueacquisitions of complementary technologies, products and businesses as a primary component of our growth strategy. Acquisitions involve certainknown and unknown risks that could cause our actual growth or operating results to differ from our expectations. For example: • we may not be able to identify suitable acquisition candidates or to consummate acquisitions on acceptable terms; • we may pursue international acquisitions, which inherently pose more risks than domestic acquisitions; • we compete with others to acquire complementary products, technologies and businesses, which may result in decreased availability of, orincreased price for, suitable acquisition candidates; • we may not be able to obtain the necessary financing, on favorable terms or at all, to finance any or all of our potential acquisitions; • we may ultimately fail to consummate an acquisition even if we announce that we plan to acquire a technology, product or business; and • acquired technologies, products or businesses may not perform as we expect and we may fail to realize anticipated revenues and profits. 22Table of ContentsIn addition, our acquisition strategy may divert management’s attention away from our existing business, resulting in the loss of key customers oremployees, and expose us to unanticipated problems or legal liabilities, including responsibility as a successor for undisclosed or contingent liabilitiesor acquired businesses or assets.If we fail to conduct due diligence on our potential targets effectively, we may not identify problems at target companies or fail to recognizeincompatibilities or other obstacles to successful integration. Our inability to successfully integrate future acquisitions could impede us from realizingall of the benefits of those acquisitions and could severely weaken our business operations. The integration process may disrupt and, if newtechnologies, products or businesses are not implemented effectively, may preclude the realization of the full benefits expected by us and could harmour results of operations. In addition, the overall integration of new technologies, products or businesses may result in unanticipated problems,expenses, liabilities and competitive responses. The difficulties in integrating acquisitions include, among other things: • maintaining employee morale and retaining key employees; • integrating the cultures of both companies; • integrating IT systems, internal control environments, accounting and back office functions; • preserving important strategic customer relationships; • consolidating corporate and administrative infrastructures and eliminating duplicative operations; and • coordinating and integrating geographically separate organizations.In addition, even if we integrate successfully the operations of an acquisition, we may not realize the full benefits of the acquisition, includingthe synergies or growth opportunities we expect. These benefits may not be achieved within the anticipated time frame, or at all.Further, acquisitions may cause us to: • issue common stock that would dilute our current stockholders’ ownership percentage; • use a substantial portion of our cash resources; • increase our interest expense, leverage and debt service requirements if we incur additional debt or contingent consideration to pay for anacquisition; • assume liabilities for which we do not have indemnification from the former owners or we have disputed or uncollectible indemnificationfrom the former owners; • record goodwill and non-amortizable intangible assets that are subject to impairment testing and potential impairment charges; • experience volatility in earnings due to changes in contingent consideration related to acquisition earn-out liability estimates; • incur amortization expenses related to certain intangible assets; • lose existing or potential contracts as a result of conflict of interest issues; • become subject to adverse tax consequences or deferred compensation charges; • incur large and immediate write-offs; or • become subject to litigation.Attempts to enter new verticals may not be successfulAs part of our growth strategy, we attempt to enter new verticals, and offer new and innovative products and services. We have and intend to enternew verticals and launch new products both organically and through selective mergers and acquisitions. Our attempts to enter new verticals and launchnew products and services may not be successful, costing us money and diverting management time and attention. 23Table of ContentsOur customers may terminate many of our contracts on short notice without penalty, which could harm our business, financial condition andresults of operations.Customers may switch service providers without incurring significant expense relative to the annual cost of the service. Our contracts generallyprovide that in the event of prolonged loss of service or for other good reasons, our customers may terminate service without penalty. In addition, someof our contracts may be terminated by our customers for no reason and upon short notice. Terms of contracts typically vary with a range from short-termcall out work to three years. Work orders placed under such agreements may have shorter terms than the relevant customer agreement. As a result, wemay not be able to retain our customers through the end of the terms specified in the contracts, resulting in harm to our business, financial conditionand results of operations.Our updated credit agreement requires us to maintain certain financial covenant ratios. These ratios may limit our capacity to finance our GXliability, growth strategy and operations. Furthermore, if we fail to comply with the covenants contained in our credit facility, including as aresult of events beyond our control, technical or other default could result, which could materially and adversely affect our operating results andour financial condition.We amended our credit facility in February 2019. Our credit agreement now contains certain covenants and restrictions, including restricting thepayment of cash dividends under default and maintaining certain financial covenants such as a consolidated fixed charge coverage ratio of not lessthan 1.25 to 1.00 as of December 31, 2018. 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 as of December 31, 2018. The consolidated leverage ratio increases to 3.25 to 1.00 for four quarters starting in thequarter that RigNet makes a final irrevocable payment of all monetary damages from the GX dispute. The consolidated leverage ratio then decreases to3.00 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 notcured or waived, the unpaid principal and any accrued interest can be declared immediately due and payable. The facilities under the credit agreementare secured by substantially all the assets of the Company.If we approach our covenant limits, we will be limited in our ability to finance our GX liability, acquisitions, capital and operating expenditures.Should this happen we would pursue additional financing, either debt and or equity. We may incur financing and legal fees attempting to amend ourcurrent credit agreement, or in pursuing other debt and or equity financing. If additional capital is needed, we may not be able to obtain debt or equityfinancing on terms acceptable to us, if at all.Our growth strategy requires substantial capital and acquisition expenditures. We may be unable to obtain required capital or financing onsatisfactory terms.To support our growth strategy, we expect to continue to make substantial capital expenditures and acquisitions. We expect to fund capitalexpenditures and acquisitions with cash generated by operations and borrowings under our revolving credit facility or capital markets transactions;however, our financing needs may require us to alter or increase our capitalization substantially through the issuance of debt or equity securities. Theissuance of additional indebtedness would require that a portion of our cash flow from operations be used for the payment of interest and principal onour indebtedness, thereby reducing our ability to use cash flow from operations to fund working capital, capital expenditures and acquisitions.Furthermore, raising equity capital would generally dilute existing shareholders. If additional capital is needed, we may not be able to obtain debt orequity financing on terms acceptable to us, if at all.Our strategy of moving up the technology stack entails entering new business lines that could fail to attract or retain users or generate revenue.A key element of our growth strategy is to move up the technology stack, that is to leverage our existing network to provide application layersolutions to our network customers. In 2017, we began reporting a new segment, Apps & IoT, to capture results from these new OTT services, such asSCADA, MetOcean, BlackTIE, CyphreLink and Adaptive Video Intelligence. In addition, in 2018, we acquired Intelie which brings us a real-timemachine-to-machine learning offering, Intelie Live. We continue to expect to invest in new lines of business, new products and other new initiatives togenerate revenue. Our customers may not adopt some of our new offerings. These offerings may present new and difficult technology challenges, andwe may be subject to claims if customers of these offerings experience service disruptions or failures or other quality issues. In addition, profitability, ifany, in our newer activities may be lower than in our older activities, and we may not be successful enough in these newer activities to recoup ourinvestments in them. Furthermore, efforts at establishing new lines of business could divert management attention from our core MCS network andSystems Integration businesses. If any of this were to occur, it could damage our reputation, limit our growth and negatively affect our operatingresults. 24Table of ContentsWe rely on third parties, particularly satellite owners, to provide products and services for the operation of our business. Failures by third-partyproviders have caused, and in the future could cause, service interruptions, harm our business and reputation and result in loss of customers andrevenue.A significant part of our operations and growth depends on third-party providers delivering reliable communications connections, networks,equipment, maintenance, repair and satellite transponder capacity, subjecting our business, reputation and customer revenue to risks beyond ourcontrol, such as: • telecommunications, satellite manufacturing, equipment or control system errors, faults or failures; • saturation of communication connection points, networks and third-party facilities; • in-orbit risks for satellites including malfunctions, commonly referred to as anomalies, and collisions with meteoroids, decommissionedspacecraft or other space debris; • lack of communication service alternatives, including failure of satellite providers to timely replace aging satellites with more moderntechnology and updated capacities; • human error; • natural disasters; • power loss; • labor strikes or work stoppages; • unauthorized access or security risks; and • sabotage or other intentional acts of vandalism.Our results in 2018 and 2017 were negatively impacted by certain satellite outages and interruptions by certain of our providers. These incidentscaused RigNet to lose forecasted revenues and to experience increased costs as we had to make alternative arrangements for our customers. We cannotassure you that we will not suffer future satellite outages or that any potential future outage will not have a material impact on our business, results ofoperations or financial condition. Under most of our contracts with satellite service providers, our satellite service providers do not indemnify us forsuch loss or damage to our business resulting from certain risks, including satellite failures. If any potential claims result in liabilities, we could berequired to pay damages or other penalties.Failure of our microwave, WiMax and/or LTE network or loss of platform access could materially impact our results of operations.Our microwave network is a Line-of-Site (LOS) system that operates by relaying microwave communications from one microwave site to anotherthat must be within visible sight. When a microwave site on a microwave relay is rendered inoperable subsequent dependent sites are also renderedinoperable. As such the risk of a microwave site being rendered inoperable by weather, technical failure, loss of access to an operator’s platform spaceor other means will likely cascade to other dependent microwave sites. We do not insure for loss of a microwave site or business interruption caused bythe loss of such a site as we believe the cost of such insurance outweighs the risk of potential loss, so the loss of a microwave site or any businessinterruption could harm our business, financial condition and results of operations.We are subject to anti-corruption and export control laws that have stringent compliance standards for us.We are subject to a number of applicable export control laws and regulations of the United States as well as comparable laws of other countries.We cannot provide services to or in certain countries subject to United States trade sanctions administered by the Office of Foreign Asset Control of theUnited States Department of the Treasury or the United States Department of Commerce unless we first obtain the necessary authorizations. If ourcustomers move their sites into countries subject to certain sanctions, we may not be able to serve them, in which case, our revenues will be adverselyimpacted, and we may have additional costs incurred as well. In addition, we are subject to the Foreign Corrupt Practices Act and other anti-corruptionlaws that, generally, prohibit bribes or unreasonable gifts to governments or officials. Violations of these laws or regulations could result in significantadditional sanctions including fines, more onerous compliance requirements, and more extensive debarments from export privileges or loss ofauthorizations needed 25Table of Contentsto conduct aspects of our international business. In certain countries, we engage third-party agents or intermediaries to act on our behalf in dealingswith government officials, such as customs agents, and if these third-party agents or intermediaries violate applicable laws, their actions may result inpenalties or sanctions being assessed against us.Many of our potential customers are resistant to new solutions and technologies, which may limit our growth.Although there is a strong focus on technology development within the oil and gas industry, some of the companies in the upstream oil and gasindustry are relatively conservative and risk averse with respect to adopting new solutions and technologies in the area of remote communications. Asa result of the sustained downturn in oil and gas prices, many of our customers focus on price rather than the value new technologies bring them, furtherslowing the uptake of new solutions and technologies. Some drilling contractors, oil and gas companies and oilfield service providers may choose notto adopt new solutions and technology, such as ourOTT offerings, which may limit our growth potential.Systems Integration projects are heavily dependent on cost, productivity, schedule and performance management.We account for Systems Integration contracts using accounting rules for construction-type contracts. Factors that may affect future project costsand margins include the price and availability of labor, equipment and materials, productivity, as well as the time necessary to obtain approvals andpermits. If we make inaccurate estimates, or if we find errors or ambiguities as to contract specifications or if circumstances change due to, among otherthings, unanticipated technical problems, changes in local labor conditions, weather delays, changes in the costs of equipment and materials, or oursuppliers’ or subcontractors’ inability to perform, or changes in foreign exchange rates, then cost overruns may occur. We may be required to payliquidated damages upon our failure to meet schedule or performance requirements of our contracts. In accordance with the accounting guidance, wewould record a cumulative adjustment to reduce the margin previously recorded on the related project in the period a change in estimate is needed. Ifthe contract is significant, or we encounter issues that impact multiple contracts, cost overruns could have a material adverse effect on our business,financial condition and results of operations.The uncertainty of our contract award timing can also present difficulties in matching workforce size with contract needs. In some cases, wemaintain and bear the cost of a ready workforce that is larger than necessary under existing contracts in anticipation of future workforce needs forexpected contract awards. If an expected contract award is delayed or not received, we may incur additional costs resulting from reductions in staff orredundancy of facilities which could have a material adverse effect on our business, financial condition and results of operations.We have a new management team which may cause disruption in our business, particularly our core markets, and which could have a materiallyadverse effect on our results of operations.Our executive officers have an average tenure with RigNet of approximately two years. The planned transition to our new executive team couldnegatively affect our relationships with key customers, particularly in our core MCS business, and our employee morale. Any such effects couldmaterially and adversely affect our business and results of operations.A significant portion of our revenue is derived from a relatively small number of customers and the loss of any of these customers wouldmaterially harm our business, financial condition and results of operations.Although we continue to diversify our customer base, we still receive a significant portion of our revenue from a relatively small number of largecustomers, among them being Royal Dutch Shell Plc, Bechtel Corporation, Ensco Plc, Seadrill Ltd., Baker Hughes, Veripos, Rowan, Noble CorporationPlc, Halliburton and Chevron. Although none of these customers represents more than 10% of our annual revenue, should one or more of thesecustomers terminate or significantly reduce their business with us and we were not able to replace such revenue, our business, financial condition andresults of operations would be materially harmed. Noble Corporation is transitioning the managed communications services we provided to one of ourcompetitors. Noble was one of our top 10 customers in 2018 and 2017, and a number of Noble sites departed service in the latter half of 2018 andfurther Noble sites are expected to depart service in 2019. If we cannot replace this lost revenue, our financial condition and results of operations wouldbe materially harmed. As our top customers are concentrated in energy, should there be any adverse impact on the energy business that caused ourcustomers to reduce demand for our services our financial condition and results of operations would be materially harmed. 26Table of ContentsWe may not be able to compete successfully against current and future competitors.We expect both product and pricing competition to persist and intensify. Increased competition could cause reduced revenue, price reductions,reduced profits and loss of market share. Our industry is characterized by competitive pressures to provide enhanced functionality for the same or lowerprice with each new generation of technology. Our primary global competitor is Speedcast International Ltd. Panasonic, through its ITC Globalsubsidiary, and Tampnet have begun to expand their presence as active providers of communications services to the oil and gas, mining and maritimemarkets. We also compete with regional competitors in the countries in which we operate. In addition, in certain markets outside of the U.S., we facecompetition from local competitors that provide their services at a lower price due to lower overhead costs, including lower costs of complying withapplicable government regulations and their willingness to provide services for a lower profit margin. Strong competition and significant investmentsby competitors to develop new and better solutions may make it difficult for us to maintain our customer base, force us to reduce our prices or increaseour costs to develop new solutions.Furthermore, competition may emerge from companies that we have previously not perceived as competitors or consolidation of our industrymay cause existing competitors to become bigger and stronger with more resources, market awareness and market share. For example, we haveexperienced customer projects where we have bid directly against some of our satellite bandwidth providers, either acting alone or in conjunction withone of our direct competitors. Competition with our satellite bandwidth providers, either alone or in restrictive arrangements with our suppliers orcompetitors may materially and adversely affect the availability and pricing of our products and services.As we expand into new markets, we may experience increased competition from some of our competitors that have prior experience or otherbusiness in these markets or geographic regions. In addition, some of our customers may decide to insource some of the MCS solutions that we provide,in particular our terrestrial communication services (e.g., Line-of-Site (LOS) or Worldwide Interoperability for Microwave Access (WiMAX)), which donot require the same level of maintenance and support as our other services. Our success will depend on our ability to adapt to these competitive forces,to adapt to technological advances, to develop more advanced services and solutions more rapidly and less expensively than our competitors, tocontinue to develop and deepen our global sales and business development network, and to educate potential customers about the benefits of usingour solutions rather than our competitors’ services or in sourced solutions. Our failure to successfully respond to these competitive challenges couldharm our business, financial condition and results of operations.Our international operations are subject to additional or different risks than our United States operations, which may harm our business andfinancial results.We operate in many countries around the world, including countries in Asia, the Middle East, Africa, Latin America and Europe and intend tocontinue to expand the number of countries in which we operate. However, because operations in some countries may be temporary, the total numberof countries in which we operate fluctuates. There are many risks inherent in conducting business internationally that are in addition to or differentthan those affecting our United States operations, including: • foreign laws and regulations that may be vague or arbitrary, lack traditional concepts of due process, and be subject to unexpected changesor interpretations, resulting in difficulty enforcing contracts or timely collection of receivables; • tariffs, import and export restrictions and other trade barriers; • difficulty in staffing and managing geographically dispersed operations and culturally diverse work forces in countries with varyingemployment laws and practices including restrictions on terminating employees; • increased travel, infrastructure and legal compliance costs associated with multiple international locations; • differing technology standards; • currency exchange rate fluctuation and currency controls; • potential political and economic instability, which may include military conflict, nationalization or expropriation; • potentially adverse tax consequences; • difficulties and expense of maintaining international sales distribution channels; and • difficulties in maintaining and protecting our intellectual property. 27Table of ContentsThe authorities in the countries where we operate may introduce additional regulations for the oil and gas and communications industries. Newrules and regulations may be enacted, or existing rules and regulations may be applied or interpreted in a manner which could limit our ability toprovide our services. Amendments to current laws and regulations governing operations and activities in the oil and gas industry andtelecommunications industry could harm our operations and financial results. Compliance with and changes in tax laws or adverse positions taken bytaxing authorities could be costly and could affect our operating results.Compliance related tax issues could also limit our ability to do business in certain countries. Changes in tax laws or tax rates, the resolution oftax assessments or audits by various taxing authorities, disagreements with taxing authorities over our tax positions and the ability to fully utilize ourtax loss carry-forwards and tax credits could have a significant financial impact on our future operations and the way we conduct, or if we conduct,business in the affected countries.Our intellectual property rights are valuable, and any failure or inability to sufficiently protect them could harm our business and our operatingresults.We own, and maintain certain intellectual property assets, including patents, patent applications, copyrights and trademarks, trade secrets, andrights to certain domain names, which we believe are collectively among our most valuable assets. We seek to protect our intellectual property assetsthrough the laws of the U.S. and other countries of the world, and through contractual provisions. However, the efforts we have taken to protect ourintellectual property assets and proprietary rights might not be sufficient or effective at stopping unauthorized use of those rights. If we are unable toprotect our proprietary rights from unauthorized use, the value of our intellectual property assets may be reduced.We compete for satellite capacity for our services and any capacity constraints could harm our business, financial condition and results ofoperations.In certain markets, the availability and pricing of capacity could be subject to competitive pressure. We may be unable to secure the capacityneeded at competitive prices to conduct our operations, which could harm our business, financial condition and results of operations. In certainmarkets, the availability of bandwidth may be restricted by local governments when needed to support military operations, and in the event of such anaction, there is no guarantee that we will be able to secure the capacity needed to meet our contractual commitments to our customers.Restructuring activities may negatively impact the Company.Reductions in resources may adversely affect or delay various sales, marketing, product development and operational activities, which couldhave a material adverse effect on our financial results. Additionally, restructuring activities could have negative effects on our internal control overfinancial reporting and employee morale.Information technology infrastructure and systems are critical to supporting our operations, accounting and internal controls; any potentialfailure of our information technology infrastructure or systems could adversely affect our business, financial conditions and results of operations.We continue to update and enhance our information systems. If a problem occurs that impairs or compromises this infrastructure, systemsupgrades and/or new systems implementations, the resulting disruption could impede our ability to perform accounting, invoice, process orders,generate management reports or otherwise carry on business in the normal course. Any such events could cause us to lose customers and/or revenue andcould require us to incur significant expense to remediate. Additionally, any such events could adversely harm our legal, accounting and compliancecapabilities including but not limited to: our ability to timely file reports with the SEC; maintain effectiveness of internal control; timely file financialstatements required by certain statutes; timely file compliance reports with our lenders under our credit agreement; and timely file income taxes withthe IRS, foreign taxing authorities, and local taxing authorities.Severe weather in the Gulf of Mexico or other areas where we operate could harm our business, financial condition and results of operations.Certain areas in and near the Gulf of Mexico and other areas in which our clients operate experience unfavorable weather conditions, includinghurricanes and other extreme weather conditions, on a relatively frequent basis. A major storm or threat of a major storm in these areas may harm ourbusiness. Our clients’ drilling rigs, production platforms and other vessels in these areas are susceptible to damage and/or total loss by these storms,which may cause them to no longer 28Table of Contentsneed our communication services. Our equipment on these rigs, platforms or vessels could be damaged causing us to have service interruptions andlose business or incur significant costs for the replacement of such equipment. Even the threat of a very large storm will sometimes cause our clients tolimit activities in an area and thus harm our business. Changing weather conditions could impair satellite connectivity, cause more sites to be shutdown and generally cause activities to be limited so that our business may be harmed. This risk is more pronounced for LOS microwave service, asthere is a likely loss of service for multiple subsequent microwave sites in the network relay.Changes in the regulatory framework under which we operate could adversely affect our business prospects or results of operations.Our U.S. services are provided on a private carrier basis. As such, these services are subject to light or no regulation by the FCC and state PUCs. Ifthe FCC or one or more PUCs or any other telecommunications regulator determine that these services or the services of our subsidiaries or affiliatesconstitute common carrier offerings or change the regulations applicable to private carriers, we may be subject to significant costs to ensurecompliance with the applicable provisions of those laws and regulations. We may be subject to enforcement actions including, but not limited to, fines,cease and desist orders, or other penalties if we fail to comply with those requirements.Our international operations are also regulated by various non-U.S. governments and international bodies. These regulatory regimes frequentlyrequire that we maintain licenses for our operations and conduct our operations in accordance with prescribed standards and requirements. Theadoption of new laws or regulations, changes to the existing regulatory framework, new interpretations of the laws that apply to our operations, or theloss of, or a material limitation on, any of our material licenses could materially harm our business, results of operations and financial condition.If we infringe, or if third parties assert that we infringe, third-party intellectual property rights we could incur significant costs and incursignificant harm to our business.Third parties may assert infringement or other intellectual property claims against us, which could result in substantial damages if it is ultimatelydetermined that our services infringe a third-party’s proprietary rights. Even if claims are without merit, defending a lawsuit takes significant time, maybe expensive and may divert management’s attention from our other business concerns.Many of our contracts are governed by the laws of countries that may make them difficult or expensive to interpret or enforce.Many of our contracts are governed by the laws of countries other than the U.S., which may create both legal and practical difficulties in case of adispute or conflict. We operate in regions where the ability to protect contractual and other legal rights may be limited. In addition, having to pursuearbitration or litigation in some countries may be more difficult or expensive than pursuing litigation in the United States.Some of our stockholders could exert control over our Company.As of March 11, 2019, funds associated with Kohlberg Kravis Roberts & Co. L.P., or KKR, owned in the aggregate shares representingapproximately 25.7% of our outstanding voting power and have a seat on our board of directors. Additionally, as of March 11, 2019, funds associatedwith FMR, LLC, owned in the aggregate shares representing approximately 15.0% of our outstanding voting power, and funds associated withArrowpoint Asset Management, LLC, owned in the aggregate shares representing approximately 13.0% of our outstanding voting power. As a result,any of these stockholders could potentially have significant influence over all matters presented to our stockholders for approval, including election orremoval of our directors and change of control transactions. The interests of these stockholders may not always coincide with the interests of the otherholders of our common stock.We are subject to fluctuations in currency exchange rates and limitations on the expatriation or conversion of currencies, which may result insignificant financial charges, increased costs of operations or decreased demand for our services and solutions.During the year ended December 31, 2018, 8.4% of our revenues were earned in non-U.S. currencies, while a significant portion of our capital andoperating expenditures and all of our outstanding debt, was priced in U.S. dollars. In addition, we report our results of operations in U.S. dollars.Accordingly, fluctuations in exchange rates relative to the U.S. dollar could have a material effect on our reported earnings or the value of our assets. Inthe future, a greater portion of our revenues may be earned in non-U.S. currencies, increasing this risk of fluctuations in exchange rates. 29Table of ContentsAny depreciation of local currencies in the countries in which we conduct business may result in increased costs to us for imported equipmentand may, at the same time, decrease demand for our services and solutions in the affected markets. If our operating companies distribute dividends inlocal currencies in the future, the amount of cash we receive will also be affected by fluctuations in exchange rates. In addition, some of the countries inwhich we have operations do or may restrict the expatriation or conversion of currency making such cash unavailable for financing of our globaloperations and capital investments.Furthermore, a majority of our cash balances are held outside of the United States. Were we to repatriate this cash to the United States we mayhave to pay taxes in one or more countries making the cash available to us less than that reported in our financial statements.The average daily trading volume of our common stock is low which can cause volatility in its price unrelated to our actual operations andperformance.The average daily trading volume of our stock in 2018 was approximately 56 thousand shares. Due to the low trading volume our stock may besubject to more market volatility than other more liquid stocks, without regard to our performance. Stock price volatility and sustained decreases in ourshare price could subject our stockholders to losses and subject us to takeover bids or lead to action by NASDAQ. The trading price of our commonstock has been, and may continue to be, subject to fluctuations in price in response to various factors, some of which are beyond our control, including,but not limited to: • quarterly announcements and variations in our results of operations or those of our competitors, either alone or in comparison to analysts’expectations or prior Company estimates, including announcements of site counts, rates of churn, loss of a material customer, and operatingmargins that would result in downward pressure on our stock price; • the cost and availability or perceived availability of additional capital and market perceptions relating to our access to this capital; • announcements by us or our competitors of acquisitions, new products or technologies; • recommendations by securities analysts or changes in their estimates concerning us; • changes in the valuation of our deferred tax assets; • any significant change in our board of directors or management; and • perceptions of general market conditions in the technology and communications and oil and gas industries, the U.S. economy and globalmarket conditions.In addition, we are only covered by two analysts, which could lead to less independent analysis for shareholders.We are a smaller reporting company and, as such, our common stock may be less attractive to investors.We are a smaller reporting company, (i.e. a company with less than $250 million of public float) and we are eligible to take advantage of certainexemptions from various reporting requirements applicable to other public companies. We cannot predict if investors will find our common stock lessattractive as a result of our smaller reporting company status. If some investors find our common stock less attractive as a result of our choices, theremay be a less active trading market for our common stock and our stock price may be more volatile. 30Table of ContentsItem 1B. Unresolved Staff CommentsNot applicable.Item 2. PropertiesFacilitiesWe lease 28,808 square feet of headquarters office space located in Houston, Texas. The term of this lease runs through June 2025. We also own acustom built, approximately 26,000 square foot facility in Aberdeen, Scotland, a 55,000 square foot facility in Lafayette, Louisiana and a 13,000square foot facility in Breaux Bridge, Louisiana.We have other offices under lease in Lafayette, Louisiana; Denver, Colorado; Stavanger, Norway; Doha, Qatar and Singapore, and additionalleased offices, warehouses and service centers in the United States, Brazil, Mexico, Nigeria, Malaysia, Australia, United Arab Emirates and SaudiArabia. We believe our facilities are adequate for our current needs and for the foreseeable future.Item 3. Legal ProceedingsIn August 2017, the Company filed litigation in Harris County District Court and arbitration against one of its former Chief Executive Officersfor, among other things, breach of fiduciary duty, misappropriation of trade secrets, unfair competition and breach of contract. That former executivefiled counterclaims against the Company and one of its independent directors. The parties entered into a settlement agreement resolving all claimsamongst themselves in May 2018 and dismissed the litigation and arbitration proceedings. The Company incurred legal expense of approximately$0.6 million and $0.9 million in connection with this dispute for the year ended December 31, 2018 and 2017, respectively.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 2014 take-or-pay agreement to purchase up to $65.0 million, under certain conditions, of GXcapacity from Inmarsat over several years (GX dispute). Phase I of the arbitration, now concluded, concerned only whether RigNet’s take or payobligation ever commenced under the agreement. In December 2018, the panel’s Phase I ruling found that a take-or-pay obligation under a January2014 contract had commenced and that RigNet owed Inmarsat $50.8 million, subject to any offsets from RigNet’s counterclaims in Phase II of thearbitration. The Phase I ruling is an interim ruling, and RigNet is not required to pay any amounts to Inmarsat until the panel rules on Phase IIcounterclaims. The Company currently expects a Phase II ruling in the second half of 2019.The Company has an accrued liability of $50.8 million, based on the Phase I interim award amount. While management believes it has strongcounterclaims, which will be heard in Phase II and could reduce the ultimate liability, the amount of the final award is not estimable at this time. Noassurance can be given as to the ultimate outcome of the GX dispute, and the ultimate outcome may differ from the accrued amount. Based on theinformation available at this time, the potential final loss could be based on the Phase I ruling less any offsets from RigNet’s counterclaims in Phase IIof the arbitration offset by any potential counterclaims by Inmarsat, including interest and fees. As such, the range of the ultimate liability is currentlynot estimable.During the year ended December 31, 2018, the Company has accrued $50.6 million of expense, net of approximately $0.2 million of prioraccruals, in the Corporate segment. The Company has incurred legal expenses of $2.2 million and $1.6 million in connection with the GX dispute forthe years ended December 31, 2018 and 2017, respectively. The Company may continue to incur significant legal fees, related expenses andmanagement time in the future.The Company, in the ordinary course of business, is a claimant or a defendant in various other legal proceedings, including proceedings as towhich the Company has insurance coverage and those that may involve the filing of liens against the Company or its assets.Item 4. Mine Safety DisclosuresNot applicable. 31Table of ContentsPART IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesRigNet’s common stock, $0.001 par value, is traded on the NASDAQ Global Select Market (NASDAQ), under the ticker symbol RNET. Therewere approximately 111 holders of record of RigNet’s common stock on record as of February 28, 2019.DividendsWe have not paid any cash dividends on our common stock and do not intend to do so in the foreseeable future. Further, our term loan agreementrestricts our ability to pay cash dividends. We currently intend to retain all available funds and any future earnings to support the operation of and tofinance the growth and development of our business. 32Table of ContentsStockholder Return Performance PresentationThe following graph compares the change in the cumulative total stockholder return on our common stock during the period from December 31,2013 through December 31, 2018, with the cumulative total return on the NASDAQ Composite Index, the PHLX Oil Service Sector Index and theNASDAQ Telecommunications Index. The Oil Service Sector Index is a price-weighted index composed of the common stocks of 15 companies thatprovide oil drilling and production services, oilfield equipment, support services, and geophysical/reservoir services. The comparison assumes that$100 was invested on December 31, 2012 in our common stock and in each of the foregoing indices and assumes reinvestment of dividends, if any.Comparison of Cumulative Total Return 12/31/2013 12/31/2014 12/31/2015 12/31/2016 12/31/2017 12/31/2018 RigNet, Inc. (1) 100 86 43 48 31 26 NASDAQ 100 113 120 129 165 159 Oil Service Sector 100 75 56 65 53 29 NASDAQ Telecommunications 100 109 101 116 136 140 (1)Based on the last reported sale price of the Company’s stock as reported by NASDAQ on the disclosed date or nearest date prior to discloseddate on which a sale occurred.Investors are cautioned against drawing any conclusions from the data contained in the graph as past results are not necessarily indicative offuture performance.Notwithstanding anything to the contrary set forth in any of the Company’s previous or future filings under the Securities Act of 1933 or theSecurities Exchange Act of 1934 that might incorporate this Annual Report on Form 10-K or future filings with the SEC, in whole or in part, thepreceding performance information shall not be deemed to be “soliciting material” or to be “filed” with the SEC or incorporated by reference into anyfiling except to the extent this performance presentation is specifically incorporated by reference therein. 33Table of ContentsItem 6. Selected Financial DataThe following table sets forth our selected consolidated financial data for the periods indicated. Data was derived from RigNet, Inc.’s auditedconsolidated financial statements. The data set forth should be read together with Item 7. “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” and with Item 8. “Financial Statements and Supplementary Data.” Our historical results for any prior period arenot necessarily indicative of the results to be expected in the future.We have never declared or paid any cash dividends on our common stock. Year Ended December 31, 2018 2017 2016 2015 2014 (in thousands, except per share amounts) Consolidated Statements of Comprehensive Income (Loss) Data: Revenue $238,854 $204,892 $220,623 $271,260 $330,174 Expenses: Cost of revenue (excluding depreciation and amortization) 146,603 131,166 129,759 163,238 188,209 Depreciation and amortization 33,154 30,845 33,556 32,471 29,462 Impairment of intangibles — — 397 14,262 2,719 Selling and marketing 12,844 8,347 7,172 9,449 9,298 Change in fair value of earn-out/contingent consideration 3,543 (320) (1,279) — — GX dispute 50,612 — — — — General and administrative 53,193 44,842 53,469 63,192 66,402 Total expenses 299,949 214,880 223,074 282,612 296,090 Operating income (loss) (61,095) (9,988) (2,451) (11,352) 34,084 Interest expense (3,969) (2,870) (2,708) (2,054) (2,185) Other income (expense), net 4 133 (313) (845) (516) Income (loss) before income taxes (65,060) (12,725) (5,472) (14,251) 31,383 Income tax (expense) benefit 2,746 (3,472) (5,825) (2,409) (15,400) Net income (loss) (62,314) (16,197) (11,297) (16,660) 15,983 Less: Net loss (income) attributable to: Non-redeemable, non-controlling interest 139 (21) 210 314 348 Net income (loss) attributable to RigNet, Inc. stockholders $(62,453) $(16,176) $(11,507) $(16,974) $15,635 Net income (loss) per share attributable to RigNet, Inc. common stockholders: Basic $(3.34) $(0.90) $(0.65) $(0.97) $0.90 Diluted $(3.34) $(0.90) $(0.65) $(0.97) $0.87 Weighted average shares outstanding: Basic 18,713 18,009 17,768 17,534 17,321 Diluted 18,713 18,009 17,768 17,534 17,899 Other Non-GAAP Data: Adjusted EBITDA $34,793 $29,669 $37,181 $46,907 $73,735 The 2018 acquisitions of Auto-Comm, SAFCON and Intelie contributed revenue and net income of $17.7 million and $2.2 million, respectively,for year ended December 31, 2018. The 2017 acquisitions of ESS, DTS and Cyphre contributed $5.1 million of revenue for the year endedDecember 31, 2017. The 2017 acquisitions contributed $1.4 million to net income for the year ended December 31, 2017. The GX dispute and changein fair value of earn-out/contingent consideration are now presented as separate financial statement line items, and all historical data have been recastto conform to the current year presentation. 34Table of Contents December 31, 2018 2017 2016 2015 2014 (in thousands) Consolidated Balance Sheets Data: Cash and cash equivalents $21,711 $34,598 $57,152 $60,468 $66,576 Restricted cash—current 41 43 139 543 1,200 Restricted cash—long-term 1,544 1,500 1,514 — 62 Total assets 258,925 230,094 230,972 258,116 299,837 Current maturities of long-term debt 4,942 4,941 8,478 8,421 8,405 Long-term debt 72,085 53,173 52,990 69,238 77,706 Long-term deferred revenue 318 546 254 359 516 Non-GAAP Financial MeasuresWe refer to Adjusted EBITDA in this Annual Report on Form 10-K and from time to time in other filings that we make with the SEC. AdjustedEBITDA is a financial measure that is not calculated in accordance with GAAP and should not be considered as an alternative to net income (loss),operating income (loss), basic or diluted earnings (loss) per share or any other measure of financial performance calculated and presented in accordancewith GAAP. Our Adjusted EBITDA may not be comparable to similarly titled measures of other companies because other companies may not calculateAdjusted EBITDA or similarly titled measures in the same manner as we do. We prepare Adjusted EBITDA to eliminate the impact of items that we donot consider indicative of our core operating performance. We encourage you to evaluate these adjustments and the reasons we consider themappropriate.We define Adjusted EBITDA as net income (loss) plus interest expense, income tax expense (benefit), depreciation and amortization, impairmentof 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 and non-recurring items. We prepare Adjusted EBITDA to eliminate the impact ofitems that we do not consider indicative of our core operating performance. We encourage you to evaluate these adjustments and the reasons weconsider them appropriate.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 ofcompanies, and we understand investor’s and analyst’s analyses include Adjusted EBITDA; • by comparing our Adjusted EBITDA in different periods, investors may evaluate our operating results without the additional variationscaused by items that we do not consider indicative of our core operating performance and which are not necessarily comparable from yearto year; and • Adjusted EBITDA is an integral component of Consolidated EBITDA, as defined and used in the financial covenant ratios in our creditagreement.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. 35Table of ContentsAlthough Adjusted EBITDA is frequently used by investors and securities analysts in their evaluations of companies, Adjusted EBITDA haslimitations 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 underGAAP. 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 and property, plant and equipment; • Adjusted EBITDA does not reflect foreign exchange impact of intercompany financing activities; • Adjusted EBITDA does not reflect (gain) loss on sales of property, plant and equipment, net of retirements; • Adjusted EBITDA does not reflect the stock-based compensation component of employee compensation; • Adjusted EBITDA does not reflect acquisition costs; • Adjusted EBITDA does not reflect change in fair value of earn-outs and contingent consideration; • Adjusted EBITDA does not reflect executive departure costs; • Adjusted EBITDA does not reflect restructuring charges; • Adjusted EBITDA does not reflect the GX dispute; and • although depreciation and amortization are non-cash charges, the assets being depreciated or amortized will often have to be replaced inthe future, and Adjusted EBITDA does not reflect any cash requirements for these replacements.The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for each of the periods presented. Net income (loss) is themost comparable GAAP measure to Adjusted EBITDA. Year Ended December 31, 2018 2017 2016 2015 2014 (in thousands) Reconciliation of Net Income (Loss) to Adjusted EBITDA: Net income (loss) $(62,314) $(16,197) $(11,297) $(16,660) $15,983 Interest expense 3,969 2,870 2,708 2,054 2,185 Depreciation and amortization 33,154 30,845 33,556 32,471 29,462 Impairment of goodwill, intangibles and property, plant and equipment — — 397 14,262 2,719 Foreign exchange impact of intercompany financing activities — — — — 856 (Gain) loss on sales of property, plant and equipment, net of retirements 331 55 (153) (41) (44) Stock-based compensation 4,712 3,703 3,389 3,660 4,252 Restructuring costs 842 767 1,911 7,410 — Change in fair value of earn-out/contingent consideration 3,543 (320) (1,279) — — Executive departure costs 406 1,192 1,884 1,000 — Acquisition costs 2,284 3,282 240 342 2,922 GX dispute 50,612 — — — — Income tax expense (benefit) (2,746) 3,472 5,825 2,409 15,400 Adjusted EBITDA (non-GAAP measure) $34,793 $29,669 $37,181 $46,907 $73,735 36Table of ContentsItem 7. Management’s Discussion And Analysis Of Financial Condition And Results Of OperationsGeneralThe following discussion should be read together with our consolidated financial statements and the related notes included elsewhere in thisAnnual Report on Form 10-K. This discussion contains forward-looking statements about our business and operations. Our future results may differmaterially from those we currently anticipate as a result of the factors we describe under “Risk Factors” and elsewhere in this Annual Report onForm 10-K.Executive OverviewWe deliver advanced software, optimized industry solutions, and communications infrastructure that allow our customers to realize the businessbenefits of digital transformation. With world-class, ultra-secure solutions spanning global IP connectivity, bandwidth-optimized OTT applications,IoT big data enablement, and industry-leading machine learning analytics, RigNet supports the full evolution of digital enablement, empoweringbusinesses to respond faster to high priority issues, mitigate the risk of operational disruption, and maximize their overall financial performance.Our OperationsWe are a global technology company that provides customized data and communications services. Customers use our private networks tomanage information flows and execute mission-critical operations primarily in remote areas where conventional telecommunications infrastructure iseither unreliable or unavailable. We provide our clients what is often the sole means of communications for their remote operations. On top of andvertically 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-time AI-backed dataanalytics platform to enhance customer decision making and business performance.MCS and Apps & IoT customers are primarily served under fixed-price contracts, either on a monthly or day rate basis or for equipment sales. Ourcontracts are generally in the form of Master Service Agreements, or MSAs, with specific services being provided under individual service orders.Offshore contracts generally have a term of up to three years with renewal options. Land-based contracts are generally shorter term or terminable onshort notice without a penalty. Service orders are executed under the MSA for individual remote sites or groups of sites, and generally permit earlytermination 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 outof service and is expected to be idle for a protracted period of time). Systems Integration customers are served primarily under fixed-price, long-termcontracts.Segment information is prepared consistent with the components of the enterprise for which separate financial information is available andregularly evaluated by the chief operating decision-maker for the purpose of allocating resources and assessing performance. ManagedCommunications was renamed Managed Communications Services (MCS). • Managed Communications Services (MCS). Our MCS provides remote communications, telephony and technology services for offshoreand onshore drilling rigs and production facilities, support vessels, and other remote sites. • Applications and Internet-of-Things (Apps & IoT). Our Apps & IoT segment provides applications over-the-top of the network layerincluding Software as a Service (SaaS) offerings such as cybersecurity, applications for safety and workforce productivity such as weathermonitoring primarily in the North Sea (MetOcean), a real-time machine learning and AI data platform (Intelie Pipes and Intelie LIVE) andcertain other value-added services such as Adaptive Video Intelligence (AVI). This segment also includes the private machine-to-machineIoT 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 telecommunicationssystems. 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 andmaintenance.Corporate and eliminations primarily represents unallocated executive and support activities, interest expense, income taxes, eliminations, theGX dispute and change in fair value of earn-out/contingent consideration. 37Table of ContentsCost 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 satellitebandwidth (the measure of capacity) used in the transmission of service to and from contracted satellites. Direct service labor consists of fieldtechnicians, our Network Operations Center (NOC) employees, and other employees who directly provide services to customers. Network operationsexpenses consist primarily of costs associated with the operation of our NOC, which is maintained 24 hours a day, seven days a week. Depreciation andamortization are recognized on all property, plant and equipment either installed at a customer’s site or held at our corporate and regional offices, aswell as intangibles arising from acquisitions and internal use software. Selling and marketing expenses consist primarily of salaries and commissions,travel costs and marketing communications. General and administrative expenses consist of expenses associated with our management, finance,contract, support and administrative functions.Profitability generally increases or decreases at a MCS site as we add or lose customers and value-added services. Assumptions used indeveloping the rates for a site may not cover cost variances from inherent uncertainties or unforeseen obstacles, including both physical conditions andunexpected problems encountered with third party service providers.Recent DevelopmentsOn February 13, 2019, the Company entered into the first amendment to the third amended and restated credit agreement (Updated CreditAgreement) with four participating financial institutions. The Updated Credit Agreement provides for a $15.0 million term loan facility, a$30.0 million term out facility and an $85.0 million revolving credit facility. The revolving credit facility and term out facility mature on April 6,2021. The term loan facility matures on December 31, 2020.In January 2019, we announced the appointment of retired Rear Admiral Jamie Barnett as Senior Vice President of Government Services.We have committed to upgrade our Gulf of Mexico microwave network. In conjunction with a major U.S. carrier, this upgrade will add 4G LTEservices and 5G capabilities to the existing network. Additionally, we purchased an office in Lafayette, Louisiana that will consolidate three separatelegacy facilities. The Gulf of Mexico LTE network buildout project and the buildout of the Lafayette, Louisiana office will increase capitalexpenditures into 2019.In August 2018, we announced the appointment of Lee M. Ahlstrom as Senior Vice President and Chief Financial Officer.In July 2018, we paid an earn-out of $8.0 million in connection with the March 2016 acquisition of TECNOR. The $2.1 million change in fairvalue of the earn-out in the year ended December 31, 2018 is primarily related to the second quarter 2018 negotiations with the sellers of TECNOR onthe amount of the earn-out. Additionally, we have agreed to pay the sellers of TECNOR up to $1.0 million in either cash or RigNet stock payable in2019 for the collection of certain accounts receivable balances. As of December 31, 2018, the fair value for the agreement to collect certain accountsreceivable was zero.On April 18, 2018, we completed the separate acquisitions of Automation Communications Engineering Corp. (Auto-Comm) and SafetyControls, Inc. (SAFCON) for an aggregate purchase price of $6.7 million. Of this aggregate purchase price, we paid $2.6 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 andgas 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 strongrelationships with major energy companies that complement the relationships that we have established over the years. Auto-Comm and SAFCON arebased 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 andexpect to pay $7.6 million worth of RigNet stock as contingent consideration earn-out, estimated as of the date of acquisition. The initial estimate ofthe earn-out payable was preliminary and remains subject to change based on the achievement of certain post-closing performance targets under 38Table of Contentsthe acquisition agreement. The maximum earn-out is $17.0 million. Intelie is a real-time, predictive analytics company that combines an operationalunderstanding with a machine learning approach. Intelie facilitates innovation via Intelie Pipes, a distributed query language with a complex eventprocessor to aggregate and normalize real-time data from a myriad of data sources. This technology enables the Intelie LIVE platform to solve dataintegration, data quality, data governance and monitoring problems. Intelie LIVE is an operational intelligence platform that empowers clients to maketimely, data-driven decisions in mission-critical real-time operations, including drilling, and longer-term, data-intensive projects, such as wellplanning. Intelie Live has broad applicability across many industry verticals. Intelie is based in Brazil.As of December 31, 2018, we have backlog for our percentage of completion projects, which includes our SI projects and our LTE buildoutproject, of $45.5 million. Our backlog does not extend past 2020.Known Trends and UncertaintiesOperating MattersUncertainties in the oil and gas industry may continue to impact our profitability. The fundamentals of the oil and gas industry we serve remainchallenged into 2019, particularly offshore. Although oil prices and U.S. drilling rig counts increased in 2017 and the first three quarters of 2018 sincetheir 2016 lows, the oil and gas environment continues to be challenged with operators focusing on projects with shorter pay-back periods thatgenerally require less capital investment and lower costs from service providers and drilling contractors. The average price of Brent crude, a keyindicator of activity for the oil and gas industry, averaged $71.19 per barrel through the year ending December 31, 2018 compared to an average of$54.12 for the year ending December 31, 2017. 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 quarter of 2019 Brentcrude oil prices have recovered to over $60 a barrel. As a result, drilling contractors appear cautiously optimistic about a gradual demand recovery. Theoffshore drilling contracting environment remains challenged, with major offshore drilling contractors having experienced significant pressure on dayrates, which in turn has had a negative impact on the rates we are able to charge customers. Generally, a prolonged lower oil price environmentdecreases exploration and development drilling investment, utilization of drilling rigs and the activity of the global oil and gas industry that we serve.As of the dates and for the periods referenced below, we were billing on the following sites listed in the table below: December 31, Average Count Selected Operational Data: 2018 2017 2016 2018 2017 2016 MCS Site Count Offshore drilling rigs (1) 184 182 175 188 178 203 Offshore Production 347 304 280 327 302 286 Maritime 181 172 122 180 149 116 Other sites (2) 611 513 344 597 470 351 Total 1,323 1,171 921 1,292 1,098 956 (1)Includes jack up, semi-submersible and drillship rigs(2)Includes U.S. onshore drilling and production sites, completion sites, man-camps, remote offices, supply bases and offshore-related supply bases,shore offices, tender rigs and platform rigsIn addition, uncertainties that could impact our profitability and operating cash flows include service responsiveness to remote locations,communication network complexities, political and economic instability in certain regions, export restrictions, licenses and other trade barriers, theavailability and cost of satellite bandwidth, timing of collecting our receivables, and our ability to increase our contracted services through sales andmarketing efforts while leveraging the contracted satellite and other communication service costs. These uncertainties may result in the delay ofservice initiation, which may negatively impact our results of operations. 39Table of ContentsSales Tax AuditWe are undergoing a routine sales tax audit from a state where we have operations. The audit can cover up to a four-year period. We are in theearly stages of the audit and do not have any estimates of further exposure, if any, for the tax years under review.Global Xpress (GX) DisputeInmarsat plc (Inmarsat), a satellite telecommunications company, filed arbitration with the International Centre for Dispute Resolution tribunal(the panel) in October 2016 concerning a January 2014 take-or-pay agreement to purchase up to $65.0 million, under certain conditions, of GXcapacity from Inmarsat over several years (GX dispute). Phase I of the arbitration, now concluded, concerned only whether our take or pay obligationever commenced under the agreement. In December 2018, the panel’s Phase I ruling found that a take-or-pay obligation under a January 2014 contracthad commenced and that we owed Inmarsat $50.8 million, subject to any offsets from our counterclaims in Phase II of the arbitration. The Phase I rulingis an interim ruling, and we are not required to pay any amounts to Inmarsat until the panel rules on Phase II counterclaims. We currently expect aPhase II ruling in the second half of 2019.We have an accrued liability of $50.8 million, based on the Phase I interim award amount. While we believe we have strong counterclaims, whichwill be heard in Phase II and could reduce the ultimate liability, the amount of the final award is not estimable at this time. No assurance can be givenas to the ultimate outcome of the GX dispute, and the ultimate outcome may differ from the accrued amount. Based on the information available at thistime, the potential final loss could be based on the Phase I ruling less any offsets from our counterclaims in Phase II of the arbitration offset by anypotential counterclaims by Inmarsat, including interest and fees. As such, the range of the ultimate liability is currently not estimable.During the year ended December 31, 2018, we accrued $50.6 million of expense, net of approximately $0.2 million of prior accruals, in theCorporate segment. We have incurred legal expenses of $2.2 million and $1.6 million in connection with the GX dispute for the years endedDecember 31, 2018 and 2017, respectively. We may continue to incur significant legal fees, related expenses and management time in the future.Critical Accounting PoliciesCertain of our accounting policies require judgment by management in selecting the appropriate assumptions for calculating financial estimates.By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, terms ofexisting contracts, observance of trends in the industry, information provided by our customers, and information available from other outside sources,as appropriate. Future results may differ from these judgments under different assumptions or conditions. Our accounting policies that requiremanagement to apply significant judgment include:Revenue Recognition—Revenue from Contracts with CustomersRevenue is recognized to depict the transfer of promised goods or services in an amount that reflects the consideration to which we expect to beentitled in exchange for those goods or services.Revenue Recognition—MCS and Apps & IoTMCS and Apps & IoT customers are primarily served under fixed-price contracts, either on a monthly or day rate basis or for equipment sales andconsulting services. Our contracts are generally in the form of Master Service Agreements, or MSAs, with specific services being provided underindividual service orders. Offshore contracts generally have a term of up to three years with renewal options. Land-based contracts are generally shorterterm or terminable on short notice without a penalty. Service orders are executed under the MSA for individual remote sites or groups of sites, andgenerally 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 MCS and Apps & IoTcontracts. Revenue for contracts is generally recognized over time as service is transferred to the customer and we expect to be entitled to the agreedmonthly or day rate in exchange for those services. 40Table of ContentsPerformance Obligations Satisfied at a Point in Time—The delivery of equipment represents the single performance obligation under equipmentsale contracts. Revenue for equipment sales is generally recognized upon delivery of equipment to customers.Revenue Recognition—Systems IntegrationRevenues related to long-term, fixed-price Systems Integration contracts for customized network solutions are recognized based on thepercentage 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 towardcompletion 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 obligationunder Systems Integration contracts. Progress towards completion on fixed-price contracts is measured based on the ratio of costs incurred to totalestimated contract costs (the cost-to-cost method). These estimates may be revised as additional information becomes available or as specific projectcircumstances change.We review all material contracts on a monthly basis and revise 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 inthe period in which a change in estimate is recognized, based on progress achieved through the period of change. Anticipated losses on contracts arerecorded in full in the period in which they become evident. Revenue recognized in excess of amounts billed is classified as a current asset under Costsand estimated earnings in excess of billings on uncompleted contracts (CIEB).Systems Integration contracts are billed in accordance with the terms of the contract which are typically either based on milestones or specifiedtime intervals. As of December 31, 2018 and 2017, the amount of CIEB related to Systems Integration projects was $7.1 million and $2.4 million,respectively. Under long-term contracts, amounts recorded in CIEB may not be realized or paid, respectively, within a one-year period. As ofDecember 31, 2018 and 2017, none and $0.4 million, respectively, of amounts billed to customers in excess of revenue recognized to date areclassified as a current liability, under deferred revenue. All of the billings in excess of costs as of December 31, 2017 were recognized as revenue duringthe year ended December 31, 2018.Variable Consideration – Systems Integration – We record revenue on contracts relating to certain probable claims and unapproved changeorders by including in revenue an amount less than or equal to the amount of costs incurred to date relating to these probable claims and unapprovedchange orders, thus recognizing no profit until such time as claims are finalized or change orders are approved. The amount of unapproved changeorders and claim revenues is included in our Consolidated Balance Sheets as part of CIEB. No material unapproved change orders or claims revenuewas included in CIEB as of December 31, 2018 and 2017. As new facts become known, an adjustment to the estimated recovery is made and reflectedin the current period.Revenue related to long-term, fixed-price Systems Integration contracts for customized network solutions are recognized using thepercentage-of-completion method. 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 towardcompletion to determine the extent of revenue and profit recognition. Progress towards completion on fixed price contracts is measured based on theratio of costs incurred to total estimated contract costs (the cost-to-cost method). These estimates may be revised as additional information becomesavailable or as specific project circumstances change.Accounts ReceivableTrade accounts receivable are recognized as customers are billed in accordance with customer contracts. We report an allowance for doubtfulaccounts for probable credit losses existing in accounts receivable. Management determines the allowance based on a review of currently outstandingreceivables and our historical collection experience. Individual receivables and balances which have been outstanding greater than 120 days arereviewed individually. Account balances, when determined to be uncollectible, are charged against the allowance. 41Table of ContentsProperty, Plant and EquipmentProperty, plant and equipment consists of (i) telecommunication and computer equipment, (ii) furniture and other office equipment,(iii) leasehold improvements, (iv) building and (v) land. All property, plant and equipment, excluding land, is depreciated and stated at acquisitioncost net of accumulated depreciation. Depreciation is provided using the straight-line method over the expected useful lives of the respective assets,which range from one to ten years. We assess the value of property, plant and equipment for impairment when we determine that events andcircumstances indicate that the recorded carrying value may not be recoverable. An impairment is determined by comparing estimated future netundiscounted cash flows to the carrying value at the time of the assessment. No impairment to property, plant and equipment was recorded in the yearsended December 31, 2018, 2017 or 2016.Any future downturn in our business could adversely impact the key assumptions in our impairment test. While we believe that there appears tobe no indication of current or future impairment, historical operating results may not be indicative of future operating results and events andcircumstances may occur causing a triggering event in a period as short as three months.IntangiblesIntangibles consist of customer relationships, covenants-not-to-compete, brand name, licenses, developed technology and backlog acquired aspart of our acquisitions. Intangibles also include internal-use software. Intangibles have useful lives ranging from 5.0 to 20.0 years and are amortizedon a straight-line basis. We assess the value of intangibles for impairment when we determine that events and circumstances indicate that the recordedcarrying value may not be recoverable. An impairment is determined by comparing estimated future net undiscounted cash flows to the carrying valueat the time of the assessment.No impairment to intangibles was recorded in the years ended December 31, 2018 or 2017.In June 2016, we identified a triggering event for a license in Kazakhstan associated with a decline in cash flow projections, which resulted in a$0.4 million impairment of licenses in the Corporate segment, which was the full amount of intangibles within Kazakhstan.Any future downturn in our business could adversely impact the key assumptions in our impairment test. While we believe that there appears tobe no indication of current or future impairment, historical operating results may not be indicative of future operating results and events andcircumstances may occur causing a triggering event in a period as short as three months.GoodwillGoodwill resulted from prior acquisitions as the consideration paid for the acquired businesses exceeded the fair value of acquired identifiablenet tangible and intangible assets. Goodwill is reviewed for impairment at least annually, as of July 31, with additional evaluations being performedwhen events or circumstances indicate that the carrying value of these assets may not be recoverable.The goodwill impairment test is used to identify potential impairment by comparing the fair value of each reporting unit to the book value of thereporting unit, including goodwill. Fair value of the reporting unit is determined using a combination of the reporting unit’s expected present value offuture cash flows and a market approach. The present value of future cash flows is estimated using our most recent forecast and our weighted averagecost of capital. The market approach uses a market multiple on the reporting unit’s cash generated from operations. Significant estimates for eachreporting unit included in our impairment analysis are cash flow forecasts, our weighted average cost of capital, projected income tax rates and marketmultiples. Changes in these estimates could affect the estimated fair value of our reporting units and result in an impairment of goodwill in a futureperiod. If the fair value of a reporting unit is less than its book value, goodwill of the reporting unit is considered to be impaired. If the book value ofthe reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. Anyimpairment in the value of goodwill is charged to earnings in the period such impairment is determined.We recorded no goodwill impairments in the years ending December 31, 2018, 2017 or 2016. 42Table of ContentsMCS had $22.5 million of goodwill as of December 31, 2018, and fair value exceeded carrying value by 34.7% as of the July 31, 2018 annualimpairment test. Apps & IoT had $22.8 million of goodwill as of December 31, 2018, and fair value exceeded carrying value by 48.1% as of theJuly 31, 2018 annual impairment test. Systems Integration had $1.4 million of goodwill as of December 31, 2018, and fair value exceeded carryingvalue by 126.5% as of the July 31, 2018 annual impairment test. Any future downturn in our business could adversely impact the key assumptions inour impairment test. While we believe that there appears to be no indication of current or future impairment, historical operating results may not beindicative of future operating results and events and circumstances may occur causing a triggering event in a period as short as three months.While we believe that there appears to be no indication of current or future impairment, historical operating results may not be indicative offuture operating results and events and circumstances may occur causing a triggering event in a period as short as three months.Stock-Based CompensationWe recognize expense for stock-based compensation based on the fair value of options, restricted stock, restricted stock units and performanceshare units on the grant date of the awards. Fair value of options on the grant date is determined using the Black-Scholes model, which requiresjudgment in estimating the expected term of the option, risk-free interest rate, expected volatility and dividend yield of the option. Fair value ofrestricted stock, restricted stock units and performance share units on the grant date is equal to the market price of RigNet’s common stock on the dateof grant. Our policy is to recognize compensation expense for service-based awards on a straight-line basis over the requisite service period of theentire award. Stock-based compensation expense is based on awards ultimately expected to vest.TaxesCurrent income taxes are determined based on the tax laws and rates in effect in the jurisdictions and countries that we operate in and revenue isearned. Deferred income taxes reflect the tax effect of net operating losses, foreign tax credits and the tax effects of temporary differences between thecarrying amount of assets and liabilities for financial statement and income tax purposes, as determined under enacted tax laws and rates. Valuationallowances are established when management determines that it is more likely than not that some portion or the entire deferred tax asset will not berealized. The financial effect of changes in tax laws or rates is accounted for in the period of enactment.From time to time, we engage in transactions in which the tax consequences may be subject to uncertainty. In the normal course of business, weprepare and file tax returns based on interpretation of tax laws and regulations, which are subject to examination by various taxing authorities. Suchexaminations may result in future tax and interest assessments by these taxing authorities. We evaluate our tax positions and recognize only taxbenefits for financial purposes that, more likely than not, will be sustained upon examination, including resolutions of any related appeals or litigationprocesses, based on the technical merits of the position.We have elected to include income tax related interest and penalties as a component of income tax expense.On December 22, 2017 the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (The TaxAct), 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 measurementperiod that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. Inaccordance 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 iscomplete. 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 reasonableestimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in thefinancial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before theenactment of the Tax Act.We have completed the accounting for the income tax effects of the Tax Act based on current regulations and available information. Anyadditional guidance issued by the IRS could impact our recorded amounts in future periods.New Accounting PronouncementsNo standard implemented during 2018 or 2017 had a material effect on our financial position, cash flow or results of operations. See our auditedconsolidated financial statements and the notes thereto included in this Annual Report on Form 10-K for more details regarding our implementationand assessment of new accounting standards. 43Table of ContentsResults of OperationsThe following table sets forth selected financial and operating data for the periods indicated. Percentage Change Year Ended December 31, 2017 to2018 2016 to2017 2018 2017 2016 (in thousands, except percentages) Revenue $238,854 $204,892 $220,623 16.6% (7.1)% Expenses: Cost of revenue (excluding depreciation and amortization) 146,603 131,166 129,759 11.8% 1.1% Depreciation and amortization 33,154 30,845 33,556 7.5% (8.1)% Impairment of intangibles — — 397 * (100.0)% Selling and marketing 12,844 8,347 7,172 53.9% 16.4% Change in fair value of earn-out/contingent consideration 3,543 (320) (1,279) (1,207.2)% (75.0)% GX dispute 50,612 — — * * General and administrative 53,193 44,842 53,469 18.6% (16.1)% Total expenses 299,949 214,880 223,074 39.6% (3.7)% Operating loss (61,095) (9,988) (2,451) 511.7% 307.5% Other expense, net (3,965) (2,737) (3,021) 44.9% (9.4)% Loss before income taxes (65,060) (12,725) (5,472) 411.3% 132.5% Income tax (expense) benefit 2,746 (3,472) (5,825) (179.1)% (40.4)% Net loss (62,314) (16,197) (11,297) 284.7% 43.4% Less: Net income attributable to non-controlling interests 139 (21) 210 (761.9)% (110.0)% Net income (loss) attributable to RigNet, Inc. stockholders $(62,453) $(16,176) $(11,507) 286.1% 40.6% Other Non-GAAP Data: Adjusted EBITDA $34,793 $29,669 $37,181 17.3% (20.2)% 44Table of ContentsThe following represents selected financial operating results for our segments: Percentage Change Year Ended December 31, 2017 to2018 2016 to2017 2018 2017 2016 (in thousands, except percentages) Managed Communication Services: Revenue $171,574 $164,238 $192,538 4.5% (14.7)% Cost of revenue (excluding depreciation and amortization) 105,101 101,681 112,046 3.4% (9.3)% Depreciation and amortization 22,759 23,202 26,581 (1.9)% (12.7)% Selling, general and administrative 16,448 16,841 28,422 (2.3)% (40.7)% Managed Communication Services operating income $27,266 $22,514 $25,489 21.1% (11.7)% Applications and Internet-of-Things: Revenue $25,713 $15,626 $6,495 64.6% 140.6% Cost of revenue (excluding depreciation and amortization) 13,386 10,751 2,703 24.5% 297.7% Depreciation and amortization 4,570 1,738 — 162.9% * Selling, general and administrative 1,961 1,685 268 16.4% 528.7% Applications and Internet-of-Things operating income $5,796 $1,452 $3,524 299.2% (58.8)% Systems Integration: Revenue $41,567 $25,028 $21,590 66.1% 15.9% Cost of revenue (excluding depreciation and amortization) 28,116 18,734 15,010 50.1% 24.8% Depreciation and amortization 2,511 2,438 2,712 3.0% (10.1)% Selling, general and administrative 1,698 1,403 2,665 21.0% (47.4)% Systems Integration operating income $9,242 $2,453 $1,203 276.8% 103.9% NOTE: Consolidated balances include the segments above along with corporate activities and intercompany eliminations.Years Ended December 31, 2018 and 2017Revenue. Revenue increased by $34.0 million, or 16.6%, to $238.9 million for the year ended December 31, 2018 from $204.9 million for theyear ended December 31, 2017. Revenue increased in all segments. The 2018 acquisitions of Auto-Comm, SAFCON and Intelie contributed revenue of$17.7 million for the year ended December 31, 2018. The Systems Integration segment increased $16.5 million, or 66.1%, primarily due to$13.0 million from the acquisition of Auto-Comm and SAFCON and increased activity against a growing backlog of Systems Integration projects. TheApps & IoT segment increased $10.1 million, or 64.6%, due to our focus on growth of the application layer and IoT space including $2.2 million fromthe acquisition of Intelie, $1.1 million from the acquisition of Auto-Comm and SAFCON and $4.7 million from owning ESS for the full year endedDecember 31, 2018 compared to five months in 2017. The MCS segment increased $7.3 million, or 4.5%, due to increased average site count coupledwith $1.4 million from the acquisition of Auto-Comm and SAFCON and $2.3 million from owning DTS for the full year ended December 31, 2018compared to two months in 2017.Cost of Revenue (excluding depreciation and amortization). Cost of revenue (excluding depreciation and amortization) increased by$15.4 million, or 11.8%, to $146.6 million for the year ended December 31, 2017 from $131.2 million for the year ended December 31, 2018. Cost ofrevenue (excluding depreciation and amortization) increased in the Systems Integration segment by $9.4 million due to the acquisition of Auto-Command SAFCON and increased activity of Systems Integration projects. Cost of revenue (excluding depreciation and amortization) increased in the MCSsegment by $3.4 million due to serving an increased site count. Cost of revenue (excluding depreciation and amortization) increased in the Apps & IoTsegment by $2.6 million as we invested in our strategy of expanding of the application layer and IoT space including the acquisition of Intelie andESS.Depreciation and Amortization. Depreciation and amortization expenses increased by $2.3 million to $33.2 million for the year endedDecember 31, 2018 from $30.8 million for the year ended December 31, 2017. The increase is primarily attributable to additions to property, plant andequipment and intangibles from acquisitions and capital expenditures. 45Table of ContentsSelling and Marketing. Selling and marketing expenses increased by $4.5 million to $12.8 million for the year ended December 31, 2018 from$8.3 million for the year ended December 31, 2017. This increase was due to investments made towards our growth strategy including increased salespersonnel costs, marketing strategy costs and our sales incentive plan (SIP), which increased with revenue.Change in fair value of earn-out/contingent consideration. The $3.5 million of expense and $0.3 million of gain, in the years endedDecember 31, 2018 and 2017, respectively, for change in fair value of earn-out/contingent consideration is detailed in Note 8 of the Notes toConsolidated Financial Statements of this Annual Report on Form 10-K.GX dispute. The net $50.6 million of expense for the GX dispute in the year ended December 31, 2018 is detailed in in Note 9 of the Notes toConsolidated Financial Statements and in Item 3, Legal Proceedings of this Annual Report on Form 10-K.General and Administrative. General and administrative expenses increased by $8.4 million to $53.2 million for the year ended December 31,2018 from $44.8 million for the year ended December 31, 2017. The increase in general and administrative expenses included $4.2 million fromacquired business, $2.4 million from bad debt expense, along with other increases from personnel costs and legal expenses.Income Tax Expense. Our effective income tax rate was 4.2% and (27.3)% for the years ended December 31, 2018 and 2017, respectively. Oureffective 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. See Note 13 — “Income Taxes,” to our consolidated financial statementsincluded in this Annual Report on Form 10-K for more information regarding the items comprising our effective tax rates.Years Ended December 31, 2017 and 2016Revenue. Revenue decreased by $15.7 million, or 7.1%, to $204.9 million for the year ended December 31, 2017 from $220.6 million for the yearended December 31, 2016. This decrease was driven by lower MCS revenues, partially offset by an increase in the Apps & IoT and Systems Integrationsegments. MCS segment revenue decreased $28.3 million, or 14.7%, which was primarily due to decreased revenue-per-site from offshore drilling rigsand decreased average offshore sites served partially offset by $1.9 million from the acquisition of DTS. The decreased revenue-per-site from offshoredrilling rigs is primarily due to decreased multi-tenancy ratios from operators on offshore drilling rigs. Decreased multi-tenancy ratios from operatorsreduces the opportunity to serve the operator and earn additional revenue until drilling rigs are subsequently contracted for service. Although we wereencouraged by the recent increase in offshore drilling rig site count from 175 as of December 31, 2016 to 182 as of December 31, 2017, the average sitecount decreased from 203 for the year ended December 31, 2016 to 178 for the year ended December 31, 2017. The decrease of 25 average offshoredrilling sites served during the year was primarily due to offshore drilling rigs we previously served being cold-stacked or scrapped, partially offset bynew sales wins. Revenue continues to be impacted by previously announced reductions in offshore drilling. Apps & IoT segment revenue increased$9.1 million, or 140.6%, due to our growth strategy which focuses on growth into the application layer and IoT space including the acquisition of ESS,which contributed $3.2 million. Systems Integration segment revenue increased $3.4 million, or 15.9%, due to increased activity of SystemsIntegration projects.Cost of Revenue (excluding depreciation and amortization). Cost of revenue (excluding depreciation and amortization) increased by$1.4 million, or 1.1%, to $131.2 million for the year ended December 31, 2017 from $129.8 million for the year ended December 31, 2016. Cost ofrevenue (excluding depreciation and amortization) decreased in the MCS segment by $10.4 million primarily due to reductions in ongoing expensespartially offset by the acquisition of DTS. Cost of revenue increased in the Systems Integration segment by $3.7 million due to increased activity ofSystems Integration projects. Cost of revenue increased in the Apps & IoT segment by $8.0 million as we invested in our strategy of expanding into theapplication layer and internet-of-things space including the acquisition of ESS and Cyphre.Depreciation and Amortization. Depreciation and amortization expenses decreased by $2.7 million to $30.8 million for the year endedDecember 31, 2017 from $33.6 million for the year ended December 31, 2016. The decrease was primarily attributable to lower levels of capitalexpenditures in recent years, partially offset by additions to property, plant and equipment and intangibles from acquisitions. 46Table of ContentsSelling and Marketing. Selling and marketing expenses increased by $1.2 million to $8.3 million for the year ended December 31, 2017 from$7.2 million for the year ended December 31, 2016. This increase was due to investing in our growth strategy including more sales and marketingpersonnel costs.Change in fair value of earn-out/contingent consideration. The $0.3 million and $1.3 million of gain, in the years ended December 31, 2017and 2016, respectively, for change in fair value of earn-out/contingent consideration is detailed in Note 8 of the Notes to Consolidated FinancialStatements of this Annual Report on Form 10-K.General and Administrative. General and administrative expenses decreased by $8.6 million to $44.8 million for the year ended December 31,2017 from $53.5 million for the year ended December 31, 2016. General and administrative costs decreased in the MCS and Systems Integrationsegments due to reductions in ongoing expenses partially offset by the acquisition of DTS. General and administrative costs increased in the Apps &IoT segment due to the acquisition of Cyphre and ESS.Income Tax Expense. Our effective income tax rate was (27.3)% and (106.5)% for the years ended December 31, 2017 and 2016, respectively.Our effective tax rates are affected by factors including changes in the valuation allowance related to operating in loss jurisdictions for which a benefitcannot be claimed, fluctuations in income across international jurisdictions with varying tax rates, and changes in income tax reserves. See Note 13 —“Income Taxes,” to our consolidated financial statements included in this Annual Report on Form 10-K for more information regarding the itemscomprising our effective tax rates.Liquidity and Capital ResourcesAt December 31, 2018, we had working capital, including cash, of $2.2 million.Over the past three years, annual capital expenditures have ranged from $13.6 million to $30.1 million. Based on our current expectations, webelieve our liquidity and capital resources will be sufficient for the conduct of our business and operations for the foreseeable future. We may also use aportion of our available cash to finance growth through the acquisition of, or investment in, businesses, products, services or technologiescomplementary to our current business, through selective mergers, acquisitions, joint ventures or otherwise, or to pay down outstanding debt.After settlement of intercompany payables and notes at December 31, 2018, there is no available cash in foreign subsidiaries available forrepatriation to our domestic parent. No deferred tax liability has been recognized as of December 31, 2018 for those earnings that are not consideredpermanently reinvested.During the next twelve months, we expect our principal sources of liquidity to be cash flows from operating activities, cash and cash equivalents,availability under our credit agreement and additional financing activities we may pursue, which may include debt or equity offerings. In forecastingour cash flows we have considered factors including contracted and expected services for customers, and contracted and available satellite bandwidth.While we believe we have sufficient liquidity and capital resources to meet our current operating requirements, the GX dispute and expansionplans, we may elect to pursue additional expansion opportunities within the next year which could require additional financing, either debt or equity.Beyond the next twelve months, we expect our principal sources of liquidity to be cash flows provided by operating activities, cash and cashequivalents on hand, availability under our credit agreement and additional financing activities we may pursue, which may include debt or equityofferings. 47Table of Contents Year Ended December 31, 2018 2017 2016 (in thousands) Consolidated Statements of Cash Flows Data: Cash and cash equivalents, January 1, $36,141 $58,805 $61,011 Net cash provided by operating activities 7,673 29,228 39,174 Net cash used in investing activities (34,198) (49,990) (18,288) Net cash provided by (used) in financing activities 11,855 (2,847) (15,352) Changes in foreign currency translation 1,825 945 (7,740) Cash and cash equivalents, December 31, $23,296 $36,141 $58,805 Currently, the Norwegian kroner, the British pound sterling and the Brazilian real are the foreign currencies that could materially impact ourliquidity. We presently do not hedge these risks, but evaluate financial risks on a regular basis and may utilize financial instruments in place in thefuture if deemed necessary. During the years ended December 31, 2018, 2017 and 2016, 91.6%, 90.7% and 85.4% of our revenue was denominated inU.S. dollars, respectively.Operating ActivitiesNet cash provided by operating activities was $7.7 million for the year ended December 31, 2018 compared to $29.2 million for the year endedDecember 31, 2017. The decrease in cash provided by operating activities during 2018 of $21.6 million was primarily due to the timing of collectingreceivables coupled with increased operating loss partially offset by the timing of the payment of accounts payable.Net cash provided by operating activities was $29.2 million for the year ended December 31, 2017 compared to $39.2 million for the year endedDecember 31, 2016. The decrease in cash provided by operating activities during 2017 of $9.9 million was primarily due to decreased operatingactivity partially offset by the timing of the payment of accounts payable.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 the availability and cost of satellite bandwidth, as well as the timing of collecting our receivables.Our future cash flow from operations will depend on our ability to increase our contracted services through our sales and marketing efforts whileleveraging our contracted satellite and other communication service costs and the outcome of the GX dispute.Investing ActivitiesNet cash used in investing activities was $34.2 million, $50.0 million and $18.3 million in the years ended December 31, 2018, 2017 and 2016,respectively. Of these amounts $30.1 million, $18.3 million, and $13.6 million, respectively, were for capital expenditures, an increase of $11.8 millionand $4.6 million for the years ended December 31, 2018 and 2017, respectively, compared to each of the respective prior periods. We expect our 2019capital expenditures to be focused on success-based growth, the buildout of our LTE network in the Gulf of Mexico and the buildout of our Lafayette,Louisiana office, which will consolidate multiple Louisiana facilities into one facility.Net cash used in investing activities during the year ended December 31, 2018 included $5.2 million paid net of cash acquired in connectionwith acquisitions consisting of $1.8 million for Auto-Comm and SAFCON net of cash acquired and $3.2 million for Intelie. Net cash used in investingactivities during the year ended December 31, 2017 included $32.2 million paid in connection with acquisitions consisting of $4.9 million for Cyphre,$5.1 million for DTS and $22.2 million for ESS.Financing ActivitiesNet cash provided by financing activities was $11.9 million in the year ended December 31, 2018. Net cash used in financing activities was$2.8 million and $15.4 million in the years ended December 31, 2017 and 2016 respectively. 48Table of ContentsNet cash provided by financing activities for the year ended December 31, 2018 included draws of $23.8 million on our revolving credit facilitypartially offset by $5.1 million in principal payments on our long-term debt. Additionally, we paid the $8.0 million TECNOR earnout in July 2018, ofwhich $6.4 million is recorded as cash used in financing activities and $1.6 million is recorded as cash used in operating activities. The Companyreceived proceeds from the issuance of common stock upon the exercise of stock options of $1.0 million offset by $1.2 million for stock withheld tocover employee taxes on stock-based compensation.Cash used in financing activities for the year ended December 31, 2017 included $18.2 million in principal payments on our long-term debtpartially offset by draws of $15.0 million on our revolving credit facility. This was partially offset by $0.8 million in proceeds from the issuance ofcommon stock upon the exercise of stock options.Cash used in financing activities for the year ended December 31, 2016 includes $16.6 million in principal payments on our long-term debtconsisting of $8.6 million of principal payments on the Term Loan and $8.0 million on the revolving credit facility. This was partially offset by$1.7 million in proceeds from the issuance of common stock upon the exercise of stock options.Credit AgreementWe have a $15.0 million term loan facility (Term Loan) and an $85.0 million revolving credit facility (RCF), which includes a $25.0 millionsublimit for the issuance of commercial and standby letters of credit and performance bonds.Both the Term Loan and RCF bears an interest rate of LIBOR plus a margin ranging from 1.75% to 2.75%, based on a consolidated leverage ratiodefined in the credit agreement. Interest is payable monthly and principal installments of $1.25 million under the Term Loan are due quarterly, with thebalance due November 6, 2020.The weighted average interest rate for the years ended December 31, 2018 and 2017 was 4.8% and 3.3%, respectively, with an interest rate of5.3% at December 31, 2018. As of December 31, 2018, the outstanding principal amount of the Term Loan was $10.0 million, excluding the impact ofunamortized deferred financing costs. As of December 31, 2018, $67.2 million in draws on the RCF remain outstanding.The credit agreement contains certain covenants and restrictions, including restricting the payment of cash dividends when under default andmaintaining certain financial covenants such as a consolidated leverage ratio, defined in the credit agreement, of less than or equal to 2.75 to 1.00 anda consolidated fixed charge coverage ratio of not less than 1.25 to 1.00. If any default occurs related to these covenants that was not cured or waived,the unpaid principal and any accrued interest can be declared immediately due and payable. The facilities under the credit agreement are secured bysubstantially all our assets.As of December 31, 2018, we believe we were in compliance with all covenants. We will continue to monitor our covenant compliance andintend to adjust our capital strategy, as needed. However, our ability to maintain compliance with these covenants is also dependent on our futurefinancial performance and market conditions, which may vary from current expectations.Updated Credit AgreementOn February 13, 2019, we entered into the first amendment to the third amended and restated credit agreement (Updated Credit Agreement) withfour participating financial institutions. We refinanced $30.0 million of outstanding draws under the existing $85.0 million RCF with a new$30.0 million term out facility. The Updated Credit Agreement requires a $45.0 million reserve (Specified Reserve) under the RCF that will be releasedand made available for borrowing for payment of monetary damages from the GX dispute. The Updated Credit Agreement provides for a $15.0 millionterm loan facility, a $30.0 million term out facility and an $85.0 million revolving credit facility. The revolving credit facility and term out facilitymature on April 6, 2021. The term loan facility matures on December 31, 2020.As of March 1, 2019, and after giving effect to the First Amendment, the outstanding principal amount of the Term Loan was $10.0 million, theoutstanding principal amount of the Term Out Loan was $30.0 million, and the outstanding draws on the RCF were $37.2 million with availableamounts under the RCF subject to the Specified Reserve.Under the Updated Credit Agreement, the term loan facility, the term out facility and the revolving credit facility bear interest at a rate of LIBORplus a margin ranging from 1.75% to 3.00% based on a consolidated leverage ratio defined in the Updated Credit Agreement. Interest is payablemonthly and principal installments of $1.25 million under the term loan facility are due quarterly. Principal installments of $1.5 million are duequarterly under the term out facility beginning June 30, 2019. The revolving credit facility contains a sub-limit of up to $25.0 million for commercialand stand-by letters of credit. 49Table of ContentsOur Updated 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 fixed charge coverage ratio of not less than 1.25 to 1.00 as of December 31, 2018.Additionally, the Updated Credit Agreement requires a consolidated leverage ratio, as defined in the Updated Credit Agreement, of less than or equalto 2.75 to 1.00 as of December 31, 2018. The consolidated leverage ratio increases to 3.25 to 1.00 for four quarters starting in the quarter that we makea final irrevocable payment of all monetary damages from the GX dispute. The consolidated leverage ratio then decreases to 3.00 to 1.00 for threequarters, 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, theunpaid principal and any accrued interest can be declared immediately due and payable. The facilities under the Updated Credit Agreement are securedby substantially all our assets.Off-Balance Sheet ArrangementsWe have not engaged in any off-balance sheet arrangements.Contractual Obligations and Commercial CommitmentsAt December 31, 2018, we had contractual obligations and commercial commitments as follows: Total 2019 2020 - 2021 2022 - 2023 2024 andBeyond (in thousands) Contractual Obligations: Debt obligations Term loan $9,685 $4,831 $4,854 $— $— Revolving loan 67,150 — 67,150 — — Capital leases 192 111 81 — — Interest (1) 7,729 3,930 3,799 — — Operating leases 6,112 1,822 1,895 1,351 1,044 Cyphre contingent consideration 4,110 325 650 3,135 — Intelie contingent consideration (payable in stock) 9,500 3,000 6,500 — Commercial Commitments: Satellite and network services 11,718 10,600 1,118 — — $116,196 $24,619 $86,047 $4,486 $1,044 (1)Computed on the expected outstanding principal balance through the term of the Credit Agreement, at the interest rate in effect at December 31,2018.As of December 31, 2018, we have accrued the GX dispute ($50.8 million). This is subject to change in Phase II of the arbitration; therefore, suchamounts are not included in the above contractual obligations table. As of December 31, 2018, our other noncurrent liabilities in the ConsolidatedBalance Sheet consist primarily of the, deferred tax liabilities ($0.7 million), gross unrecognized tax benefits ($16.1 million) and the related grossinterest and penalties. At this time, we are unable to make a reasonably reliable estimate of the timing of payments in individual years in connectionwith these liabilities; therefore, such amounts are not included in the above contractual obligations table.As of December 31, 2018, there were no outstanding standby letters of credit. There were $1.8 million of performance bonds outstanding. 50Table of ContentsWe have a performance bond facility with a lender in the amount of $1.5 million for our MCS segment. This facility has a maturity date of June2021. We maintain restricted cash on a dollar for dollar basis to secure this facility.Non-GAAP MeasuresThe following table presents a reconciliation of our net loss to Adjusted EBITDA. Year Ended December 31, 2018 2017 2016 (in thousands) Net loss $(62,314) $(16,197) $(11,297) Interest expense 3,969 2,870 2,708 Depreciation and amortization 33,154 30,845 33,556 Impairment of intangibles — — 397 (Gain) loss on sales of property, plant and equipment, net of retirements 331 55 (153) Stock-based compensation 4,712 3,703 3,389 Restructuring 842 767 1,911 Change in fair value of earn-out/contingent consideration 3,543 (320) (1,279) Executive departure costs 406 1,192 1,884 Acquisition costs 2,284 3,282 240 GX dispute 50,612 — — Income tax expense (benefit) (2,746) 3,472 5,825 Adjusted EBITDA (non-GAAP measure) $34,793 $29,669 $37,181 We evaluate Adjusted EBITDA generated from our operations to assess the potential recovery of historical capital expenditures, determinetiming and investment levels for growth opportunities, extend commitments of satellite bandwidth cost, invest in new products and services, expand oropen new offices and service centers, and assess purchasing synergies.During the year ended December 31, 2018, Adjusted EBITDA increased by $5.1 million from $29.7 million in 2017 to $34.8 million in 2017.During the year ended December 31, 2017, Adjusted EBITDA decreased by $7.5 million from $37.2 million in 2016 to $29.7 million in 2017. 51Table of ContentsItem 7A. Quantitative and Qualitative Disclosures about Market RiskWe are subject to a variety of risks, including foreign currency exchange rate fluctuations relating to foreign operations and certain purchasesfrom foreign vendors. In the normal course of business, we assess these risks and have established policies and procedures to manage our exposure tofluctuations 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 earningsand cash flows associated with foreign currency exchange rates. We presently do not hedge these risks, but evaluate financial risk on a regular basisand may utilize financial instruments in the future if deemed necessary. During the years ended December 31, 2018 and 2017, 8.4% and 9.3%,respectively of our revenues were earned in non-U.S. currencies. At December 31, 2018 and 2017, we had no significant outstanding foreign exchangecontracts.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 ifdeemed necessary. The following analysis reflects the annual impacts of potential changes in our interest rate to net loss attributable to us and our totalstockholders’ equity based on our outstanding long-term debt on December 31, 2018 and 2017, assuming those liabilities were outstanding for theentire year. December 31, 2018 2017 (in thousands) Effect on Net Income (Loss) and Equity—Increase/Decrease: 1% Decrease/increase in rate $770 $581 2% Decrease/increase in rate $ 1,541 $ 1,162 3% Decrease/increase in rate $2,311 $1,743 Item 8. Financial Statements and Supplementary DataOur consolidated financial statements, together with the related notes and report of independent registered public accounting firm, are set forthon the pages indicated in Item 15.Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone.Item 9A. Controls and ProceduresEvaluation of Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (ourprincipal financial officer), evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2018. The term “disclosurecontrols and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act), means controlsand 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 orsubmits 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 disclosedby a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management,including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Managementrecognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving theirobjectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based onthe evaluation of our disclosure controls and procedures as of December 31, 2018, our Chief Executive Officer and Chief Financial Officer concludedthat, as of such date, our disclosure controls and procedures were effective and provide reasonable assurance that information required to be disclosedby the Company is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. 52Table of ContentsChanges in Internal Control over Financial ReportingThere were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) ofthe Exchange Act that occurred during the quarter ended December 31, 2018 that has materially affected, or is reasonably likely to materially affect,our internal control over financial reporting.Management included in its assessment of internal control over financial reporting all consolidated entities, but excluded certain acquireeprocesses related to operations from Auto-Comm and SAFCON acquired by the company on April 18, 2018, and Intelie acquired by the Company onMarch 23, 2018.Limitations of the Effectiveness of Internal ControlA control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the internalcontrol system are met. Because of the inherent limitations of any internal control system, internal control over financial reporting may not detect orprevent misstatements. Projections of any evaluation of the effectiveness to future periods are subject to the risk that controls may become inadequatebecause of changes in conditions or that the degree of compliance with the policies and procedures may deteriorate.Management’s Annual Report on Internal Control over Financial ReportingThe management report called for by Item 308(a) of Regulation S-K is provided below. 53Table of ContentsMANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTINGThe management of RigNet, Inc. and its subsidiaries (the Company) is responsible for establishing and maintaining adequate internal controlover financial reporting. The Company’s internal control system was designed to provide reasonable assurance to management and the Board ofDirectors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generallyaccepted accounting principles.All internal control systems, no matter how well designed, have inherent limitations. Even those systems determined to be effective can provideonly reasonable assurance with respect to financial statement presentation and preparation. Further, because of changes in conditions, the effectivenessof internal control may vary over time.As of December 31, 2018, our management assessed the effectiveness of our internal control over financial reporting based on the criteria foreffective internal control over financial reporting established in Internal Control – Integrated Framework (2013), issued by the Committee ofSponsoring Organizations of the Treadway Commission. Based on the assessment, management determined that we maintained effective internalcontrol over financial reporting as of December 31, 2018, based on those criteria.Management included in its assessment of internal control over financial reporting all consolidated entities, but excluded certain acquireeprocesses related to operations from Intelie, Auto-Comm and SAFCON acquired by the Company on March 23, 2018, and April 18, 2018, respectively.Intelie, Auto-Comm and SAFCON represents 40% and 10% of net and total assets, respectively, 7% of revenues and 3% of net loss of the consolidatedfinancial statement amounts as of and for the year ended December 31, 2018. Management determined that the internal controls of Intelie, Auto-Command SAFCON would be excluded from the internal control assessment as of December 31, 2018, due to the timing of the closing of the acquisitions inMarch 2018 and April 2018 and as permitted by the rules and regulations of the Securities and Exchange Commission.Deloitte & Touche LLP, the independent registered public accounting firm that audited our consolidated financial statements included in thisAnnual Report on Form 10-K, has issued an attestation report on the effectiveness of internal control over financial reporting as of December 31, 2018which is included in Item 8. Financial Statements and Supplementary Data. 54Table of ContentsAttestation Report of the Registered Accounting FirmThe independent auditor’s attestation report called for by Item 308(b) of Regulation S-K is incorporated herein by reference to Report ofIndependent Registered Public Accounting Firm (Internal Control Over Financial Reporting), included in Item 8. Financial Statements andSupplementary Data.Item 9B. Other InformationNone. 55Table of ContentsPART IIICertain information required by Part III is omitted from this Annual Report on Form 10-K as we intend to file our definitive Proxy Statement forthe 2019 Annual Meeting of Stockholders (the “2019 Proxy Statement”) pursuant to Regulation 14A of the Securities Exchange Act of 1934, asamended, not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and certain information included in theProxy Statement is incorporated herein by reference.Item 10. Directors, Executive Officers and Corporate GovernanceCertain information in response to this item is incorporated herein by reference to “Our Board of Directors and Nominees,” “Our ExecutiveOfficers” and “Corporate Governance” in the 2019 Proxy Statement to be filed with the SEC. Information on compliance with Section 16(a) of theExchange Act is incorporated herein by reference to “Section 16(a) Beneficial Ownership Reporting Compliance” in the 2019 Proxy Statement to befiled with the SEC.Code of Ethics and Business ConductWe have adopted a code of ethics and business conduct (code of conduct) applicable to our principal executive, financial and accountingofficers. A copy of the code of conduct is available, without charge, on our website at www.rig.net. We intend to satisfy the disclosure requirements ofForm 8-K regarding any amendment to, or a waiver from, any provision of our code of ethics by posting such amendment or waiver on our website.Item 11. Executive CompensationInformation in response to this item is incorporated herein by reference to “Corporate Governance” and “Executive Compensation” in the 2019Proxy Statement to be filed with the SEC. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersInformation in response to this item is incorporated herein by reference to “Securities Authorized for Issuance under Equity Compensation Plans”and “Security Ownership of Certain Beneficial Owners and Management” in the 2019 Proxy Statement to be filed with the SEC. Item 13. Certain Relationships and Related Transactions, and Director IndependenceInformation in response to this item is incorporated herein by reference to “Certain Relationships and Related Transactions” and “DirectorIndependence” in the 2019 Proxy Statement to be filed with the SEC.Item 14. Principal Accounting Fees and ServicesInformation in response to this item is incorporated herein by reference to “Fees Paid to Independent Registered Public Accounting Firm” in the2019 Proxy Statement to be filed with the SEC. 56Table of ContentsPART IVItem 15. Exhibits, Financial Statement Schedules (A)Consolidated Financial Statements 1.Consolidated Financial Statements. The consolidated financial statements listed in the accompanying “Index to Consolidated FinancialInformation” are filed as part of this Annual Report. 2.Consolidated Financial Statement Schedules. All schedules have been omitted because the information required to be presented in them isnot applicable or is shown in the financial statements or related notes. (B)ExhibitsThe exhibits listed below are filed as part of this Annual Report for Form 10-K. 57Table of ContentsINDEX 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 Form 10-Q filed with the SEC on May 9, 2016, and incorporated herein byreference) 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 Form 8-K filed with the SEC on January 17, 2018, and incorporatedherein by reference) 3.1 Amended and Restated Certificate of Incorporation, as amended (filed as Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Qfiled 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’sQuarterly Report on Form 10-Q filed with the SEC on August 8, 2016, and incorporated herein by reference) 3.3 Second Amended and Restated Bylaws of the Registrant (filed as Exhibit 3.3 to the Registrant’s Annual Report on Form 10-K filed withthe SEC on March 6, 2018, and incorporated herein by reference) 4.1 Specimen certificate evidencing common stock (filed as Exhibit 4.1 to the Registrant’s Registration Statement on Form S-1 [FileNo. 333-169723], as amended, and incorporated herein by reference) 10.1+ 2006 Long-Term Incentive Plan (filed as Exhibit 10.1 to the Registrant’s Registration Statement on Form S-1 [File No. 333-169723], asamended, and incorporated herein by reference) 10.2+ 2010 Omnibus Incentive Plan (filed as Exhibit 10.2 to the Registrant’s Registration Statement on Form S-1 [File No. 333-169723], asamended, and incorporated herein by reference) 10.3+ Amendment to the 2010 Omnibus Incentive Plan (filed as Exhibit 99.2 to the Registrant’s Registration Statement on Form S-8 [FileNo. 333-211471] and incorporated herein by reference) 10.4+ Form of Option Award Agreement under the 2006 Plan (filed as Exhibit 10.3 to the Registrant’s Registration Statement on Form S-1 [FileNo. 333-169723], as amended, and incorporated herein by reference) 10.5+ Form of Incentive Stock Option Award Agreement under the 2010 Plan (filed as Exhibit 10.4 to the Registrant’s Registration Statementon Form S-1 [File No. 333-169723], as amended, and incorporated herein by reference) 10.6+ Form of Nonqualified Stock Option Award Agreement under the 2010 Plan (filed as Exhibit 10.5 to the Registrant’s RegistrationStatement on Form S-1 [File No. 333-169723], as amended, and incorporated herein by reference) 10.7+ Form of Restricted Stock Unit Award Agreement under the 2010 Omnibus Incentive Plan (filed as Exhibit 10.1 to the Registrant’s CurrentReport on Form 8-K filed with the SEC on May 27, 2016, and incorporated herein by reference) 10.8+ Form of Performance Unit Award Agreement under the 2010 Omnibus Incentive Plan (filed as Exhibit 10.2 to the Registrant’s CurrentReport on Form 8-K filed with the SEC on May 27, 2016, and incorporated herein by reference) 10.9+ Form of Incentive Stock Option Award Agreement under the 2010 Omnibus Incentive Plan (filed as Exhibit 10.3 to the Registrant’sCurrent Report on Form 8-K filed with the SEC on May 27, 2016, and incorporated herein by reference) 10.10+ Form of Nonqualified Stock Option Award Agreement under the 2010 Omnibus Incentive Plan (filed as Exhibit 10.4 to the Registrant’sCurrent Report on Form 8-K filed with the SEC on May 27, 2016, and incorporated herein by reference) 10.11+ Form of Restricted Stock Award Agreement under the 2010 Omnibus Incentive Plan (filed as Exhibit 10.5 to the Registrant’s CurrentReport on Form 8-K filed with the SEC on May 27, 2016, and incorporated herein by reference) 10.12+ Form of 2017 Performance Unit Award Agreement under the RigNet, Inc. 2010 Omnibus Incentive Plan, as amended (filed as Exhibit 10.1to the Registrant’s Current Report on Form 8-K filed with the SEC on March 21, 2017, and incorporated herein) 10.13+ Form of Indemnification Agreement entered into with each director and executive officer (filed as Exhibit 10.1 to the Registrant’s CurrentReport on Form 8-K filed with the SEC on December 13, 2017, and incorporated herein by reference) 10.14+ Employment Agreement between the Registrant and Steven E. Pickett dated May 31, 2016 (filed as Exhibit 10.9 to the Registrant’sQuarterly Report on Form 10-Q for the period ended June 30, 2016, and incorporated herein by reference) 10.15 Third Amended and Restated Credit Agreement dated as of November 6, 2017 among RigNet, Inc. as Borrower, the Subsidiaries ofRigNet party hereto as Guarantors, Bank of America, N.A. as Administrative Agent, Swingline Lender and L/C Issuer, BBVA Compass, asSyndication Agent, the Lenders party hereto and Merrill Lynch, Pierce, Fenner & Smith Incorporated as Sole Lead Arranger and SoleBookrunner. (filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 6, 2017, andincorporated herein by reference) 58Table of Contents 10.16+ Omnibus Amendment to Incentive Plan Award Agreements (filed as Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filedwith the SEC on May 3, 2018, and incorporated herein by reference) 10.17+ Form of Restricted Stock Unit Award Agreement (filed as exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed with theSEC on August 6, 2018, and incorporated herein by reference) 10.18+ Form of Incentive Stock Option Award Agreement (filed as exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed withthe SEC on August 6, 2018, and incorporated herein by reference) 10.19 Registration Rights Agreement among Digital Oilfield Investments LP and RigNet, Inc. dated as of August 14, 2018 (filed as Exhibit10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on August 20, 2018, and incorporated herein by reference) 10.20 First Amendment to the Third Amended and Restated Credit Agreement dated as of February 13, 2019 among RigNet, Inc. as Borrower,the Subsidiaries of RigNet party hereto as Guarantors, Bank of America, N.A. as Administrative Agent, Swingline Lender and L/C Issuer,BBVA Compass, as Syndication Agent, the Lenders party hereto and Merrill Lynch, Pierce, Fenner & Smith Incorporated as Sole LeadArranger and Sole Bookrunner. (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 13,2019, and incorporated herein by reference). 21.1 Subsidiaries of the Registrant 23.1 Consent of Deloitte & Touche LLP, independent registered public accounting firm 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002101.INS XBRL Instance Document101.SCH XBRL Schema Document101.CAL XBRL Calculation Linkbase Document101.LAB XBRL Label Linkbase Document101.PRE XBRL Presentation Linkbase Document101.DEF XBRL Definition Linkbase Document +Indicates management contract or compensatory plan.Item 16. Form 10-K SummaryNone. 59Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to besigned on its behalf by the undersigned, thereunto duly authorized. RIGNET, INC. By: /s/ STEVEN E. PICKETT March 15, 2019Steven E. Pickett Chief Executive Officer and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theRegistrant and in the capacities and on the dates indicated. Name Title Date/s/ STEVEN E. PICKETT Chief Executive Officer and President March 15, 2019Steven E. Pickett (Principal Executive Officer) /s/ LEE M. AHLSTROM Senior Vice President and March 15, 2019Lee M. Ahlstrom Chief Financial Officer(Principal Financial Officer) /s/ BENJAMIN A. CARTER Director of Accounting and Reporting March 15, 2019Benjamin A. Carter (Principal Accounting Officer) /s/ JAMES H. BROWNING Chairman of the Board March 15, 2019James H. Browning /s/ MATTIA CAPRIOLI Director March 15, 2019Mattia Caprioli /s/ DITLEF DE VIBE Director March 15, 2019Ditlef de Vibe /s/ KEVIN MULLOY Director March 15, 2019Kevin Mulloy /s/ KEVIN J. O’HARA Director March 15, 2019Kevin J. O’Hara /s/ KEITH OLSEN Director March 15, 2019Keith Olsen /s/ GAIL SMITH Director March 15, 2019Gail Smith /s/ BRENT K. WHITTINGTON Director March 15, 2019Brent K. Whittington 60Table of ContentsINDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets F-5 Consolidated Statements of Comprehensive Loss F-6 Consolidated Statements of Cash Flows F-7 Consolidated Statements of Equity F-8 Notes to the Consolidated Financial Statements F-9 F-1Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Stockholders and the Board of Directors of RigNet, Inc.Opinion on the Financial Statements:We have audited the accompanying consolidated balance sheets of RigNet, Inc. and subsidiaries (the “Company”) as of December 31, 2018 and 2017,the related consolidated statements of comprehensive loss, cash flows, and equity for each of the three years in the period ended December 31, 2018,and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all materialrespects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of thethree years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’sinternal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 15, 2019, expressed anunqualified opinion on the Company’s internal control over financial reporting.Basis for opinion:These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’sfinancial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respectto the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and ExchangeCommission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits includedperforming procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing proceduresthat respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financialstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluatingthe overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion./s/ DELOITTE & TOUCHE LLPHouston, TexasMarch 15, 2019We have served as the Company’s auditor since 2007. F-2Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Stockholders and the Board of Directors of RigNet, Inc.Opinion on Internal Control over Financial ReportingWe have audited the internal control over financial reporting of RigNet, Inc. and subsidiaries (the “Company”) as of December 31, 2018, based oncriteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the TreadwayCommission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as ofDecember 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), theconsolidated financial statements as of and for the year ended December 31, 2018, of the Company and our report dated March 15, 2019, expressed anunqualified opinion on those financial statements.As described in Management’s Report on Internal Control over Financial Reporting, management excluded from its assessment the internal controlover financial reporting at Intelie Soluções Em Informática S.A (“Intelie”) and Automation Communications Engineering Corp. and Safety Controls,Inc. (collectively known as “AutoComm/SAFCON”), which was acquired on March 23, 2018 and April 18, 2018, respectively, and whose financialstatements constitute 40% and 10% of net and total assets, respectively, 7% of revenues, and 3% of net loss of the consolidated financial statementamounts of the Company as of and for the year ended December 31, 2018. Accordingly, our audit did not include the internal control over financialreporting at Intelie or AutoComm/SAFCON.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectivenessof internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Ourresponsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firmregistered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit includedobtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating thedesign and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary inthe circumstances. We believe that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts andexpenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) providereasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could havea material effect on the financial statements. F-3Table of ContentsBecause of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that thedegree of compliance with the policies or procedures may deteriorate./s/ DELOITTE & TOUCHE LLPHouston, TexasMarch 15, 2019 F-4Table of ContentsRIGNET, INC.CONSOLIDATED BALANCE SHEETS December 31, 2018 2017 (in thousands, except share amounts) ASSETS Current assets: Cash and cash equivalents $21,711 $34,598 Restricted cash 41 43 Accounts receivable, net 67,450 49,021 Costs and estimated earnings in excess of billings on uncompleted contracts (CIEB) 7,138 2,393 Prepaid expenses and other current assets 6,767 5,591 Total current assets 103,107 91,646 Property, plant and equipment, net 63,585 60,344 Restricted cash 1,544 1,500 Goodwill 46,631 37,088 Intangibles, net 33,733 30,405 Deferred tax and other assets 10,325 9,111 TOTAL ASSETS $258,925 $230,094 LIABILITIES AND EQUITY Current liabilities: Accounts payable $20,568 $12,234 Accrued expenses 16,374 16,089 Current maturities of long-term debt 4,942 4,941 Income taxes payable 2,431 1,601 GX dispute accrual 50,765 — Deferred revenue and other current liabilities 5,863 8,511 Total current liabilities 100,943 43,376 Long-term debt 72,085 53,173 Deferred revenue 318 546 Deferred tax liability 652 189 Other liabilities 28,943 25,533 Total liabilities 202,941 122,817 Commitments and contingencies (Note 9) Equity: Stockholders’ equity Preferred stock—$0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding atDecember 31, 2018 and 2017 — — Common stock—$0.001 par value; 190,000,000 shares authorized; 19,464,847 and 18,232,872 sharesissued and outstanding at December 31, 2018 and 2017, respectively 19 18 Treasury stock—91,567 and 5,516 shares at December 31, 2018 and 2017, respectively, at cost (1,270) (116) Additional paid-in capital 172,946 155,829 Accumulated deficit (96,517) (33,726) Accumulated other comprehensive loss (19,254) (14,806) Total stockholders’ equity 55,924 107,199 Non-redeemable, non-controlling interest 60 78 Total equity 55,984 107,277 TOTAL LIABILITIES AND EQUITY $258,925 $230,094 The accompanying notes are an integral part of the consolidated financial statements. F-5Table of ContentsRIGNET, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Year Ended December 31, 2018 2017 2016 (in thousands, except per share amounts) Revenue $238,854 $204,892 $220,623 Expenses: Cost of revenue (excluding depreciation and amortization) 146,603 131,166 129,759 Depreciation and amortization 33,154 30,845 33,556 Impairment of intangibles — — 397 Selling and marketing 12,844 8,347 7,172 Change in fair value of earn-out/contingent consideration 3,543 (320) (1,279) GX dispute 50,612 — — General and administrative 53,193 44,842 53,469 Total expenses 299,949 214,880 223,074 Operating loss (61,095) (9,988) (2,451) Other income (expense): Interest expense (3,969) (2,870) (2,708) Other income (expense), net 4 133 (313) Loss before income taxes (65,060) (12,725) (5,472) Income tax (expense) benefit 2,746 (3,472) (5,825) Net loss (62,314) (16,197) (11,297) Less: Net loss (income) attributable to: Non-redeemable, non-controlling interest 139 (21) 210 Net Loss attributable to RigNet, Inc. stockholders $(62,453) $(16,176) $(11,507) COMPREHENSIVE LOSS Net loss $(62,314) $(16,197) $(11,297) Foreign currency translation (4,448) 3,165 (4,135) Comprehensive loss (66,762) (13,032) (15,432) Less: Comprehensive income (loss) attributable to non-controlling interest 139 (21) 210 Comprehensive loss attributable to RigNet, Inc. stockholders $(66,901) $(13,011) $(15,642) LOSS PER SHARE—BASIC AND DILUTED Net loss attributable to RigNet, Inc. common stockholders $(62,453) $(16,176) $(11,507) Net loss per share attributable to RigNet, Inc. common stockholders, basic $(3.34) $(0.90) $(0.65) Net loss per share attributable to RigNet, Inc. common stockholders, diluted $(3.34) $(0.90) $(0.65) Weighted average shares outstanding, basic 18,713 18,009 17,768 Weighted average shares outstanding, diluted 18,713 18,009 17,768 The accompanying notes are an integral part of the consolidated financial statements. F-6Table of ContentsRIGNET, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2018 2017 2016 (in thousands) Cash flows from operating activities: Net loss $(62,314) $(16,197) $(11,297) Adjustments to reconcile net loss to net cash provided by operations: Depreciation and amortization 33,154 30,845 33,556 Impairment of intangibles — — 397 Stock-based compensation 4,712 3,703 3,389 Amortization of deferred financing costs 184 217 135 Deferred taxes (5,263) 3,917 (1,830) Change in fair value of earn-out/contingent consideration 3,543 (320) (1,279) Accretion of discount of contingent consideration payable for acquisitions 450 624 498 (Gain) loss on sales of property, plant and equipment, net of retirements 331 55 (153) Changes in operating assets and liabilities, net of effect of acquisitions: Accounts receivable (15,254) 203 18,347 Costs and estimated earnings in excess of billings on uncompleted contracts (4,103) 122 4,378 Prepaid expenses and other assets (1,026) 4,659 392 Accounts payable 7,527 2,733 129 Accrued expenses 279 3,601 (8,579) GX dispute 50,612 — — Deferred revenue and other assets 1,565 4,933 (1,150) Other liabilities (5,149) (9,867) 2,241 Payout of TECNOR contingent consideration—inception to date change in fair valueportion (1,575) — — Net cash provided by operating activities 7,673 29,228 39,174 Cash flows from investing activities: Acquisitions (net of cash acquired) (5,208) (32,205) (4,841) Capital expenditures (30,072) (18,284) (13,641) Proceeds from sales of property, plant and equipment 1,082 499 194 Net cash used in investing activities (34,198) (49,990) (18,288) Cash flows from financing activities: Proceeds from issuance of common stock upon the exercise of stock options 970 916 1,680 Stock withheld to cover employee taxes on stock-based compensation (1,154) (116) — Subsidiary distributions to non-controlling interest (157) (76) (197) Payout of TECNOR contingent consideration—fair value on acquisition date portion (6,425) — — Proceeds from borrowings 23,750 15,000 — Repayments of long-term debt (5,129) (18,171) (16,560) Payments of financing fees — (400) (100) Excess tax benefits from stock-based compensation — — (175) Net cash provided by (used) in financing activities 11,855 (2,847) (15,352) Net change in cash and cash equivalents (14,670) (23,609) 5,534 Cash and cash equivalents: Balance, January 1, 36,141 58,805 61,011 Changes in foreign currency translation 1,825 945 (7,740) Balance, December 31, $23,296 $36,141 $58,805 Supplemental disclosures: Income taxes paid $3,967 $2,060 $5,337 Interest paid $3,264 $1,965 $2,032 Property, plant and equipment acquired under capital leases $108 $— $335 Non-cash investing—capital expenditures accrued $2,123 $1,672 $2,046 Non-cash investing—tenant improvement allowance $— $1,728 $— Non-cash investing—contingent consideration for acquisitions $7,600 $3,798 $5,673 Non-cash investing and financing—stock for acquisitions $11,436 $3,304 $— Liabilities assumed—acquisitions $5,610 $819 $2,408 December 31,2018 December 31,2017 December 31,2016 Cash and cash equivalents $21,711 $34,598 $57,152 Restricted cash—current portion 41 43 139 Restricted cash—long-term portion 1,544 1,500 1,514 Cash and cash equivalents including restricted cash $23,296 $36,141 $58,805 The accompanying notes are an integral part of the consolidated financial statements. F-7Table of ContentsRIGNET, INC.CONSOLIDATED STATEMENTS OF EQUITY Common Stock Treasury Stock AdditionalPaid-InCapital RetainedEarnings(AccumulatedDeficit) AccumulatedOtherComprehensiveIncome (Loss) TotalStockholders’Equity Non-Redeemable,Non-ControllingInterest Total Equity Shares Amount Shares Amount (in thousands) Balance, January 1, 2016 17,758 18 — — 143,012 (6,043) (13,836) 123,151 162 $123,313 Issuance of common stockupon the exercise of stockoptions 223 — — — 1,680 — — 1,680 — 1,680 Restricted common stockcancellations (48) — — — — — — — — — Stock-based compensation — — — — 3,389 — — 3,389 — 3,389 Excess tax benefits fromstock-based compensation — — — — (175) — — (175) — (175) Foreign currency translation — — — — — — (4,135) (4,135) — (4,135) Non-controlling ownerdistributions — — — — — — — — (197) (197) Net income (loss) — — — — — (11,507) — (11,507) 210 (11,297) Balance, December 31,2016 17,933 18 — — 147,906 (17,550) (17,971) 112,403 175 112,578 Issuance of common stockupon the exercise of stockoptions 70 — — — 916 — — 916 — 916 Issuance of common stockupon the vesting ofrestricted stock units, netof share cancellations 44 — — — — — — — — — Issuance of common stockupon the acquisition ofCyphre 192 — — — 3,304 — — 3,304 — 3,304 Stock witheld to coveremployee taxes on stock-based compensation (6) — 6 (116) — — — (116) — (116) Stock-based compensation — — — — 3,703 — — 3,703 — 3,703 Foreign currency translation — — — — — — 3,165 3,165 — 3,165 Non-controlling ownerdistributions — — — — — — — — (76) (76) Net income (loss) — — — — — (16,176) — (16,176) (21) (16,197) Balance, December 31,2017 18,233 $18 6 $(116) $155,829 $(33,726) $(14,806) $107,199 $78 $107,277 Issuance of common stockupon the exercise of stockoptions 60 — — — 970 — — 970 — 970 Issuance of common stockupon the vesting ofrestricted stock units, netof share cancellations 383 — — — — — — — — — Issuance of common stockfor acquisitions 789 1 — — 11,435 — — 11,436 — 11,436 Stock witheld to coveremployee taxes on stock-based compensation — — 86 (1,154) — — — (1,154) — (1,154) Stock-based compensation — — — — 4,712 — — 4,712 — 4,712 Cumulative effectadjustment fromimplementation of ASU2016-16 — — — — — (338) — (338) — (338) Foreign currency translation — — — — — — (4,448) (4,448) — (4,448) Non-controlling ownerdistributions — — — — — — — — (157) (157) Net income (loss) — — — — — (62,453) — (62,453) 139 (62,314) Balance, December 31,2018 19,465 $19 92 $(1,270) $172,946 $(96,517) $(19,254) $55,924 $60 $55,984 The accompanying notes are an integral part of the consolidated financial statements. F-8Table of ContentsRIGNET, INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNote 1—Business and Summary of Significant Accounting PoliciesNature of BusinessRigNet, Inc. (the Company or RigNet) is a global technology company that provides customized data and communications services. Customersuse our private networks to manage information flows and execute mission-critical operations primarily in remote areas where conventionaltelecommunications infrastructure is either unreliable or unavailable. RigNet provides our clients what is often the sole means of communications fortheir remote operations. On top of and vertically integrated into these networks RigNet provides services ranging from fully-managed voice, data, andvideo to more advanced services including: cyber security threat detection and prevention; applications to improve crew welfare, safety or workforceproductivity; and a real-time AI-backed data analytics platform to enhance customer decision making and business performance.RigNet delivers advanced software, optimized industry solutions, and communications infrastructure that allow our customers to realize thebusiness benefits of digital transformation. With world-class, ultra-secure solutions spanning global IP connectivity, bandwidth-optimizedOver-The-Top (OTT) applications, Industrial Internet of Things (IoT) big data enablement, and industry-leading machine learning analytics, RigNetsupports the full evolution of digital enablement, empowering businesses to respond faster to high priority issues, mitigate the risk of operationaldisruption, and maximize their overall financial performance.Basis of PresentationThe Company presents its financial statements in accordance with generally accepted accounting principles in the United States (U.S. GAAP).The GX dispute and change in fair value of earn-out/contingent consideration are now presented as separate financial statement line items, andall historical data have been recast to conform to the current year presentation.Principles of Consolidation and ReportingThe Company’s consolidated financial statements include the accounts of RigNet, Inc. and all subsidiaries thereof. All intercompany accountsand transactions have been eliminated in consolidation. As of December 31, 2018, 2017 and 2016, non-controlling interest of subsidiaries representsthe outside economic ownership interest of Qatar, WLL of less than 3.0%.Use of Estimates in Preparation of Financial StatementsThe preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect thereported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reportedamounts of revenue and expenses during the reporting periods, as well as certain financial statement disclosures. The estimates that are particularlysignificant to the financial statements include estimates related to the Company’s use of the percentage-of-completion method, as well as theCompany’s valuation of goodwill, intangibles, stock-based compensation, litigation accruals, income tax valuation allowance and uncertain taxpositions. While management believes that the estimates and assumptions used in the preparation of the financial statements are appropriate, futureresults could differ from these estimates. Further, volatile equity and energy markets combine to increase uncertainty in such estimates andassumptions. As such, estimates and assumptions are adjusted when facts and circumstances dictate, and any changes will be reflected in the financialstatements in future periods.Cash and Cash EquivalentsCash and cash equivalents consist of cash on-hand and highly-liquid investments purchased with original maturities of three months or less. F-9Table of ContentsRestricted CashAs of December 31, 2018 and 2017, the Company had restricted cash of $0.1 million and $1.5 million, in current and long-term assets,respectively. The restricted cash in long-term assets is primarily used to collateralize a performance bond in the MCS segment (see Note 6 – “Long-Term Debt”).Accounts ReceivableTrade accounts receivable are recognized as customers are billed in accordance with customer contractual agreements. The Company reports anallowance for doubtful accounts for probable credit losses existing in accounts receivable. Management determines the allowance based on a review ofcurrently outstanding receivables and the Company’s historical write-off experience. Individual receivables and balances which have been outstandinggreater than 120 days are reviewed individually. Account balances, when determined to be uncollectible, are charged against the allowance.Property, Plant and EquipmentProperty, plant and equipment consists of (i) telecommunication and computer equipment, (ii) furniture and other office equipment,(iii) leasehold improvements, (iv) building and (v) land. All property, plant and equipment, excluding land, is depreciated and stated at acquisitioncost net of accumulated depreciation. Depreciation is provided using the straight-line method over the expected useful lives of the respective assets,which range from one to ten years. The Company assesses the value of property, plant and equipment for impairment when the Company determinesthat events and circumstances indicate that the recorded carrying value may not be recoverable. An impairment is determined by comparing estimatedfuture net undiscounted cash flows to the carrying value at the time of the assessment. No impairment to property, plant and equipment was recorded inthe years ended December 31, 2018, 2017 or 2016.Maintenance and repair costs are charged to expense when incurred.IntangiblesIntangibles consist of customer relationships, covenants-not-to-compete, brand name, licenses, developed technology, and backlog acquired aspart of the Company’s acquisitions. Intangibles also include internal-use software. The Company’s intangibles have useful lives ranging from 5.0 to20.0 years and are amortized on a straight-line basis. The Company assesses the value of intangibles for impairment when the Company determines thatevents and circumstances indicate that the recorded carrying value may not be recoverable. An impairment is determined by comparing estimatedfuture net undiscounted cash flows to the carrying value at the time of the assessment.No impairment to intangibles was recorded in the years ended December 31, 2018 or 2017.In June 2016, the Company identified a triggering event for a license in Kazakhstan associated with a decline in cash flow projections, whichresulted in a $0.4 million impairment of licenses in the Corporate segment, which was the full amount of the Company’s intangibles withinKazakhstan.GoodwillGoodwill resulted from prior acquisitions as the consideration paid for the acquired businesses exceeded the fair value of acquired identifiablenet tangible and intangible assets. Goodwill is reviewed for impairment at least annually, as of July 31, with additional evaluations being performedwhen events or circumstances indicate that the carrying value of these assets may not be recoverable.The goodwill impairment test is used to identify potential impairment by comparing the fair value of each reporting unit to the book value of thereporting unit, including goodwill. Fair value of the reporting unit is determined using a combination of the reporting unit’s expected present value offuture cash flows and a market approach. The present value of future cash flows is estimated using our most recent forecast and our weighted averagecost of capital. The market approach uses a market multiple on the reporting unit’s cash generated from operations. Significant estimates for each F-10Table of Contentsreporting unit included in our impairment analysis are cash flow forecasts, our weighted average cost of capital, projected income tax rates and marketmultiples. Changes in these estimates could affect the estimated fair value of our reporting units and result in an impairment of goodwill in a futureperiod. If the fair value of a reporting unit is less than its book value, goodwill of the reporting unit is considered to be impaired. If the book value ofthe reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. Anyimpairment in the value of goodwill is charged to earnings in the period such impairment is determined.The Company performs its annual impairment test on July 31, with the most recent annual test being performed as of July 31, 2018. The July 31,2018, 2017 and 2016 tests resulted in no impairment as the fair value of each reporting unit exceeded the carrying value plus goodwill of thatreporting unit. Additionally, the November 30, 2017 interim test, which was conducted due to a change in segments after the Company completed theacquisition of ESS resulted in no impairment as the fair value of each reporting unit substantially exceeded the carrying value plus goodwill of thatreporting unit.MCS had $22.5 million of goodwill as of December 31, 2018, and fair value exceeded carrying value by 34.7% as of the July 31, 2018 annualimpairment test. Apps & IoT had $22.8 million of goodwill as of December 31, 2018, and fair value exceeded carrying value by 48.1% as of theJuly 31, 2018 annual impairment test. Systems Integration had $1.4 million of goodwill as of December 31, 2018, and fair value exceeded carryingvalue by 126.5% as of the July 31, 2018 annual impairment test. Any future downturn in our business could adversely impact the key assumptions inour impairment test. While we believe that there appears to be no indication of current or future impairment, historical operating results may not beindicative of future operating results and events and circumstances may occur causing a triggering event in a period as short as three months.As of December 31, 2018 and 2017, goodwill was $46.6 million and $37.1 million, respectively. In addition to the impact of acquisitions andimpairments, goodwill increases or decreases in value due to the effect of foreign currency translation.Long-Term DebtLong-term debt is recognized in the consolidated balance sheets, net of costs incurred, in connection with obtaining debt financing. Debtfinancing costs are deferred and reported as a reduction to the principal amount of the debt. Such costs are amortized over the life of the debt using theeffective interest rate method and included in interest expense in the Company’s consolidated financial statements.Revenue Recognition—Revenue from Contracts with CustomersRevenue is recognized to depict the transfer of promised goods or services in an amount that reflects the consideration to which the Companyexpects to be entitled in exchange for those goods or services.Revenue Recognition—MCS and Apps & IoTMCS and Apps & IoT customers are primarily served under fixed-price contracts, either on a monthly or day rate basis or for equipment sales andconsulting services. Contracts are generally in the form of Master Service Agreements, or MSAs, with specific services being provided under individualservice orders. Offshore contracts generally have a term of up to three years with renewal options. Land-based contracts are generally shorter term orterminable on short notice without a penalty. Service orders are executed under the MSA for individual remote sites or groups of sites, and generallypermit 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 rigis 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 MCS and Apps & IoTcontracts. Revenue for contracts is generally recognized over time as service is transferred to the customer and the Company expects to be entitled tothe 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 equipmentsale contracts. Revenue for equipment sales is generally recognized upon delivery of equipment to customers. F-11Table of ContentsRevenue Recognition – Systems IntegrationRevenues related to long-term, fixed-price Systems Integration contracts for customized network solutions are recognized based on thepercentage 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 towardcompletion 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 obligationunder Systems Integration contracts. Progress towards completion on fixed-price contracts is measured based on the ratio of costs incurred to totalestimated contract costs (the cost-to-cost method). These estimates may be revised as additional information becomes available or as specific projectcircumstances change.The Company reviews all material contracts on a monthly basis and revises the estimates as appropriate for developments such as providingservices, purchasing third-party materials and equipment at costs differing from those previously estimated, and incurring or expecting to incurschedule issues. Changes in estimated final contract revenues and costs can either increase or decrease the final estimated contract profit or loss. Profitsare recorded in the period in which a change in estimate is recognized, based on progress achieved through the period of change. Anticipated losses oncontracts are recorded in full in the period in which they become evident. Revenue recognized in excess of amounts billed is classified as a currentasset under Costs and estimated earnings in excess of billings on uncompleted contracts (CIEB).Systems Integration contracts are billed in accordance with the terms of the contract which are typically either based on milestones or specifiedtime intervals. As of December 31, 2018 and 2017, the amount of CIEB related to Systems Integration projects was $7.1 million and $2.4 million,respectively. Under long-term contracts, amounts recorded in CIEB may not be realized or paid, respectively, within a one-year period. As of December31, 2018 and 2017, none and $0.4 million, respectively, of amounts billed to customers in excess of revenue recognized to date are classified as acurrent liability, under deferred revenue. All of the billings in excess of costs as of December 31, 2017 were recognized as revenue during the yearended December 31, 2018.Variable Consideration – Systems Integration—The Company records revenue on contracts relating to certain probable claims and unapprovedchange orders by including in revenue an amount less than or equal to the amount of costs incurred to date relating to these probable claims andunapproved change orders, thus recognizing no profit until such time as claims are finalized or change orders are approved. The amount of unapprovedchange orders and claim revenues is included in the Company’s Consolidated Balance Sheets as part of CIEB. No material unapproved change ordersor claims revenue was included in CIEB as of December 31, 2018 and 2017. As new facts become known, an adjustment to the estimated recovery ismade and reflected in the current period.Backlog—As of December 31, 2018, we have backlog for our percentage of completion projects of $45.5 million, which will be recognized overthe remaining contract term for each contract. The Company’s backlog does not extend past 2020. Percentage of completion contract terms aretypically one to three years. F-12Table of ContentsStock-Based CompensationThe Company recognizes expense for stock-based compensation based on the fair value of options and restricted stock on the grant date of theawards. Fair value of options on the grant date is determined using the Black-Scholes model, which requires judgment in estimating the expected termof the option, risk-free interest rate, expected volatility of the Company’s stock and dividend yield of the option. Fair value of restricted stock,restricted stock units and performance share units on the grant date is equal to the market price of RigNet’s common stock on the date of grant. TheCompany’s policy is to recognize compensation expense for service-based awards on a straight-line basis over the requisite service period of the entireaward. Stock-based compensation expense is based on awards ultimately expected to vest.TaxesCurrent income taxes are determined based on the tax laws and rates in effect in the jurisdictions and countries that the Company operates in andrevenue is earned. Deferred income taxes reflect the tax effect of net operating losses, foreign tax credits and the tax effects of temporary differencesbetween the carrying amount of assets and liabilities for financial statement and income tax purposes, as determined under enacted tax laws and rates.Valuation allowances are established when management determines that it is more likely than not that some portion or the entire deferred tax asset willnot be realized. The financial effect of changes in tax laws or rates is accounted for in the period of enactment.From time to time, the Company engages in transactions in which the tax consequences may be subject to uncertainty. In the normal course ofbusiness, the Company prepares and files tax returns based on interpretation of tax laws and regulations, which are subject to examination by varioustaxing authorities. Such examinations may result in future tax and interest assessments by these taxing authorities. The Company evaluates its taxpositions and recognize only tax benefits for financial purposes that, more likely than not, will be sustained upon examination, including resolutionsof any related appeals or litigation processes, based on the technical merits of the position.The Company has elected to include income tax related interest and penalties as a component of income tax expense.On December 22, 2017 the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (The TaxAct), 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 measurementperiod that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. Inaccordance 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 iscomplete. 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 reasonableestimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in thefinancial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before theenactment of the Tax Act.The Company has completed the accounting for the income tax effects of the Tax Act based on current regulations and available information.Any additional guidance issued by the IRS could impact our recorded amounts in future periods.Foreign Currency TranslationThe U.S. dollar serves as the currency of measurement and reporting for the Company’s consolidated financial statements. The Company hascertain subsidiaries with functional currencies of Norwegian kroner, British pound sterling, or Brazilian real. The functional currency of all theCompany’s other subsidiaries is the U.S. dollar.Transactions occurring in currencies other than the functional currency of a subsidiary have been converted to the functional currency of thatsubsidiary at the exchange rate in effect at the transaction date with resulting gains and losses included in current earnings. Carrying values ofmonetary assets and liabilities in functional currencies other than U.S. dollars have been translated to U.S. dollars based on the U.S. exchange rate atthe balance sheet date and the resulting foreign currency translation gain or loss is included in comprehensive income (loss) in the consolidatedfinancial statements. F-13Table of ContentsRecently Issued Accounting PronouncementsIn May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09 (ASU 2014-09), Revenuefrom Contracts with Customers (Topic 606). The core principle of this amendment is that an entity should recognize revenue to depict the transfer ofpromised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for thosegoods or services. In August 2015, the FASB issued Accounting Standards Update No. 2015-14 (ASU 2015-14), Revenue from Contracts withCustomers (Topic 606): Deferral of the Effective Date. In March 2016, the FASB issued Accounting Standards Update No. 2016-08 (ASU 2016-08),Revenue from Contracts with Customers: Principal versus Agent Considerations. The amendments are intended to improve the operability andunderstandability of the implementation guidance on principal versus agent considerations. In April and May of 2016, the FASB issued AccountingStandards Update No. 2016-10 (ASU 2016-10) and Accounting Standards Update No. 2016-12 (ASU 2016-12), Revenue from Contracts withCustomers (Topic 606), respectively, that provide scope amendments, performance obligations clarification and practical expedients. These ASUsallow for the use of either the full or modified retrospective transition method and are effective for annual reporting periods beginning afterDecember 15, 2017, including interim periods within that reporting period, with early adoption permitted for annual reporting periods beginning afterDecember 15, 2016, including interim periods within that reporting period. The Company adopted this ASU on January 1, 2018. The Company’sevaluation of this ASU included a detailed review of representative contracts from each segment and comparing historical accounting policies andpractices to the new standard. The adoption of this ASU did not have any material impact on the Company’s consolidated financial statements.In March 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02), Leases. This ASU is effective for annual reportingperiods beginning after December 15, 2018. This ASU introduces a new lessee model that generally brings leases on to the balance sheet. Based on theCompany’s current leases, the Company anticipates the new guidance will require additional assets and liabilities on the consolidated balance sheet ofbetween approximately $5.2 million and $6.2 million as of December 31, 2018. The Company plans on adopting using the optional transition methodpermitted under Accounting Standards Update No. 2018-11 (ASU 2018-11). The Company’s credit agreement excludes the impact of ASU 2016-02.In August 2016, the FASB issued Accounting Standards Update No. 2016-15 (ASU 2016-15), 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 paymentsare presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics, including the treatment ofcontingent consideration payments made after a business combination. The ASU is effective for annual and interim reporting periods beginning afterDecember 15, 2017. The Company adopted this ASU on January 1, 2018. The adoption of this ASU did not have any material impact on theCompany’s consolidated financial statements.In October 2016, the FASB issued Accounting Standards Update No. 2016-16 (ASU 2016-16), Income Taxes: Intra-Entity Transfer of AssetsOther Than Inventory. The new ASU requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other thaninventory when the transfer occurs, rather than the previous requirement to defer recognition of current and deferred income taxes for an intra-entityasset transfer until the asset had been sold to an outside party. The ASU is effective for annual and interim reporting periods beginning afterDecember 15, 2017. The Company adopted this ASU on January 1, 2018 using the modified retrospective method through a $0.3 million cumulativeeffect that directly lowered accumulated deficit. The adoption of this ASU did not have any material impact on the Company’s consolidated financialstatements.In November 2016, the FASB issued Accounting Standards Update No. 2016-18 (ASU 2016-18), which includes restricted cash in the cash andcash 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 consolidatedfinancial statements.In June 2018, the FASB issued Accounting Standards Update No. 2018-07 (ASU 2018-07), which expands the scope of Topic 718 to includeshare-based payment transactions for acquiring goods and services from nonemployees. The ASU is effective for annual and interim reporting periodsbeginning after December 15, 2018. The Company is currently in the process of evaluating the impact the adoption of this ASU will have on theCompany’s consolidated financial statements. F-14Table of ContentsIn August 2018, the FASB issued ASU No. 2018-13 (ASU 2018-13), which eliminates disclosures, modifies existing disclosures and adds newFair Value disclosure requirements to Topic 820 for the range and weighted average of significant unobservable inputs used to develop Level 3 fairvalue measurements. The ASU is effective for annual and interim reporting periods beginning after December 15, 2019. The Company is currently inthe process of evaluating the impact the adoption of this ASU will have on the Company’s consolidated financial statements.In August 2018, the FASB issued ASU No. 2018-15 (ASU 2018-15), which provides guidance on implementation costs incurred in a cloudcomputing 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 consolidated financialstatements.Note 2—Business and Credit ConcentrationsThe Company is exposed to various business and credit risks including interest rate, foreign currency, credit and liquidity risks.Interest Rate RiskThe Company has significant interest-bearing liabilities at variable interest rates which generally price monthly. The Company’s variableborrowing rates are tied to LIBOR resulting in interest rate risk (see Note 6— “Long-Term Debt”). The Company presently does not use financialinstruments 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 RiskThe Company has exposure to foreign currency risk, as a portion of the Company’s activities are conducted in currencies other than U.S. dollars.Currently, the Norwegian kroner, the British pound sterling and the Brazilian real are the currencies that could materially impact the Company’sfinancial position and results of operations. The Company presently does not hedge these risks, but evaluates financial risk on a regular basis and mayutilize financial instruments in the future if deemed necessary. Foreign currency translations are reported as accumulated other comprehensive income(loss) in the Company’s consolidated financial statements.Credit RiskCredit 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 eachcontract or service agreement and periodic evaluations of the collectability of accounts receivable. The Company provides an allowance for doubtfulaccounts which is adjusted when the Company becomes aware of a specific customer’s inability to meet its financial obligations or as a result ofchanges in the overall aging of accounts receivable. Year Ended December 31, 2018 2017 2016 (in thousands) Accounts receivable $71,649 $51,996 $52,996 Allowance for doubtful accounts, January 1, (2,975) (4,324) (3,972) Current year provision for doubtful accounts (2,660) (366) (1,095) Write-offs 1,436 1,715 743 Allowance for doubtful accounts, December 31, (4,199) (2,975) (4,324) Accounts receivable, net $67,450 $49,021 $48,672 Although during 2018, 2017 and 2016 no single customer comprised greater than 10% of revenue, the top 5 customers generated 23.0%, 26.8%and 28.6% of the Company’s 2018, 2017 and 2016 revenue, respectively. F-15Table of ContentsLiquidity RiskThe Company maintains cash and cash equivalent balances with major financial institutions which, at times, exceed federally insured limits. TheCompany monitors the financial condition of the financial institutions and has not experienced losses associated with these accounts during 2018,2017 or 2016. Liquidity risk is managed by continuously monitoring forecasted and actual cash flows and by matching the maturity profiles offinancial assets and liabilities (see Note 6— “Long-Term Debt”).Note 3—Business CombinationsAuto-Comm and SAFCONOn April 18, 2018, RigNet completed the separate acquisitions of Automation Communications Engineering Corp. (Auto-Comm) and SafetyControls, Inc. (SAFCON) for an aggregate purchase price of $6.7 million. Of this aggregate purchase price RigNet paid $2.2 million in cash and$4.1 million in 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 adiverse set of safety, security, and maintenance services to the oil and gas industry. Auto-Comm and SAFCON have developed strong relationshipswith major energy companies that complement the relationships that RigNet has established over the years. Auto-Comm and SAFCON are based inLouisiana.The assets and liabilities of Auto-Comm and SAFCON have been recorded at their estimated fair values at the date of acquisition. The excess ofthe purchase price over the estimated fair values of the underlying net tangible and identifiable intangible assets and liabilities has been recorded asgoodwill. The Company’s allocation of the purchase price is preliminary as the amounts related to the identifiable intangible assets and effects ofincome taxes resulting from the transaction, are still being finalized.The goodwill of $1.4 million arising from the acquisitions consists largely of growth prospects, synergies and other benefits that the Companybelieves will result from combining the operations of the Company and Auto-Comm and SAFCON, as well as other intangible assets that do not qualifyfor separate recognition, such as assembled workforce in place at the date of acquisition. The goodwill recognized is expected to be nondeductible forincome tax purposes. The acquisitions of Auto-Comm and SAFCON, including goodwill, are included in the Company’s consolidated financialstatements as of the acquisition date and are primarily reflected in the Systems Integration segment. Weighted AverageEstimated UsefulLife (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 F-16Table of ContentsIntelieOn March 23, 2018, RigNet completed its acquisition of Intelie™ Soluções Em Informática S.A (Intelie), for an estimated aggregate purchaseprice 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 instock and expects to pay $7.6 million worth of RigNet stock as contingent consideration earn-out, estimated as of the date of acquisition. The initialestimate of the earn-out payable was preliminary and remains subject to change based on the achievement of certain post-closing performance targetsunder the acquisition agreement. The maximum earn-out is $17.0 million payable in stock. Intelie is a real-time, predictive analytics company thatcombines an operational understanding with a machine learning approach. Intelie facilitates innovation via Intelie Pipes™, a distributed querylanguage with a complex event processor to aggregate and normalize real-time data from a myriad of data sources. This technology enables the IntelieLIVE™ platform to solve data integration, data quality, data governance and monitoring problems. Intelie LIVE is an operational intelligence platformthat empowers clients to make timely, data-driven decisions in mission-critical real-time operations, including drilling, and longer-term, data-intensiveprojects, 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 priceover the estimated fair values of the underlying net tangible and identifiable intangible assets and liabilities has been recorded as goodwill. TheCompany’s allocation of the purchase price is preliminary as the amounts related to contingent consideration, identifiable intangible assets, and theeffects of income taxes resulting from the transaction, are still being finalized.The earn-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 theConsolidated Statements of Comprehensive Loss. As of December 31, 2018, the fair value of the earn-out was $9.5 million, of which $3.0 million is inother current liabilities and $6.5 million is in other long-term liabilities. During the year ended December 31, 2018, RigNet recognized $1.8 million ofincrease in the fair value and accreted interest expense of $0.1 million on the Intelie earn-out with corresponding increases to other liabilities. Theearn-out is payable in RigNet stock in portions on the first, second and third anniversary of the closing of the acquisition based on certain post-closingperformance targets under the acquisition agreement.The goodwill of $10.7 million arising from the acquisition consists largely of growth prospects, synergies and other benefits that the Companybelieves will result from combining the operations of the Company and Intelie, as well as other intangible assets that do not qualify for separaterecognition, such as assembled workforce in place at the date of acquisition. None of the goodwill recognized is expected to be deductible for incometax purposes. The acquisition of Intelie, including goodwill, is included in the Company’s consolidated financial statements as of the acquisition dateand is reflected in the Apps & IoT segment. F-17Table of Contents Weighted AverageEstimated UsefulLife (Years) Fair Market Values (in thousands) Current assets $589 Property and equipment 73 Trade name 7 $2,300 Technology 7 8,400 Customer relationships 7 320 Total identifiable intangible assets 11,020 Goodwill 10,744 Current liabilities (460) Deferred tax liability (3,825) Total purchase price $18,141(a) (a)Includes $7.6 million in contingent consideration earn-out estimated as of the date of acquisition.Actual and Pro Forma Impact of the 2018 AcquisitionsThe 2018 acquisitions of Auto-Comm, SAFCON and Intelie contributed revenue and net income of $17.7 million and $2.2 million, respectively,for year ended December 31, 2018.The following table represents supplemental pro forma information as if the 2018 acquisitions had occurred on January 1, 2017. Year EndedDecember 31, Year EndedDecember 31, 2018 2017 (in thousands, except per share amounts) Revenue $243,311 $222,404 Expenses* 305,096 238,045 Net loss $(61,785) $(15,641) Net loss attributable to RigNet, Inc. common stockholders $(61,924) $(15,620) Net loss per share attributable to RigNet, Inc. commonstockholders: Basic $(3.31) $(0.87) Diluted $(3.31) $(0.87) *Note – The Year Ended December 31, 2018 includes a net $50.6 million expense accrual for the GX dispute reported in general and administrativeexpense. See a more complete discussion of the GX Dispute in Note 9 of the Notes to Consolidated Financial Statements and in Item 3, LegalProceedings of this Annual Report on Form 10-K. F-18Table of ContentsThe Company incurred acquisition-related costs of $2.3 million in the year ended December 31, 2018, reported in general and administrativeexpenses. Additional costs related to these acquisitions may be incurred and recorded as expense in 2019.Energy Satellite ServicesOn July 28, 2017, RigNet acquired substantially all the assets of Energy Satellite Services (ESS). ESS is a supplier of wireless communicationsservices via satellite networks primarily to the midstream sector of the oil and gas industry for remote pipeline monitoring. The assets acquired enhanceRigNet’s Supervisory Control and Data Acquisition (SCADA) customer portfolio, and strengthen the Company’s Apps & IoT market position. TheCompany 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 overthe 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 Companybelieves will result from combining the operations of the Company and ESS, as well as other intangible assets that do not qualify for separaterecognition, such as assembled workforce in place at the date of acquisition. The goodwill recognized is expected to be deductible for income taxpurposes. The acquisition of ESS, including goodwill, is included in the Company’s consolidated financial statements as of the acquisition date and isreflected in the Apps & IoT segment. Weighted AverageEstimated UsefulLife (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 Data Technology SolutionsOn July 24, 2017, RigNet acquired substantially all the assets of Data Technology Solutions (DTS). DTS provides comprehensivecommunications and IT services to the onshore, offshore, and maritime industries, as well as disaster relief solutions to global corporate clients. TheCompany 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 overthe 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 Companybelieves will result from combining the operations of the Company and DTS, as well as other intangible assets that do not qualify for separaterecognition, such as assembled workforce in place at the date of acquisition. The goodwill recognized is expected to be deductible for income taxpurposes. The acquisition of DTS, including goodwill, is included in the Company’s consolidated financial statements as of the acquisition date and isreflected in the MCS segment. F-19Table of Contents Fair Market Values (in thousands) Property and equipment $4,553 Goodwill 704 Accounts Payable (152) Total purchase price $5,105 Cyphre Security SolutionsOn 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 ofcontingent consideration for intellectual property, estimated as of the date of acquisition. Cyphre is a cybersecurity company that provides advancedenterprise data protection leveraging BlackTIE® hardware-based encryption featuring low latency protection for files at rest and in transit for bothpublic and private cloud. Cyphre is based in Texas.The contingent consideration for Cyphre is measured at fair value in each reporting period, based on level 3 inputs, with any change to fair valuerecorded in the Consolidated Statements of Comprehensive Loss. As of December 31, 2018, the fair value of the contingent consideration was$3.7 million, of which $0.3 million is in other current liabilities and $3.4 million is in other long-term liabilities. During the year ended December 31,2018, RigNet recognized a $0.3 million reduction in fair value and accreted interest expense of $0.1 million on the Cyphre contingent considerationwith corresponding changes 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 priceover 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 Companybelieves will result from combining the operations of the Company and Cyphre, as well as other intangible assets that do not qualify for separaterecognition, such as assembled workforce in place at the date of acquisition. The goodwill recognized is expected to be deductible for income taxpurposes. The acquisition of Cyphre, including goodwill, is included in the Company’s consolidated financial statements as of the acquisition dateand is reflected in the Apps & IoT segment. Weighted AverageEstimated UsefulLife (Years) Fair Market Values (in thousands) Property and equipment $18 Trade Name 7 1,590 Technology 7 5,571 Customer Relationships 7 332 Total identifiable intangible assets 7,493 Goodwill 4,591 Accrued Expenses (100) Total purchase price $12,002(a) (a)Includes $3.8 million in contingent consideration estimated as of the date of acquisition. F-20Table of ContentsActual and Pro Forma Impact of the 2017 AcquisitionsThe 2017 acquisitions of ESS, DTS and Cyphre contributed $5.1 million of revenue for the year ended December 31, 2017. The 2017acquisitions contributed $1.4 million to net income for the year ended December 31, 2017.The following table represents supplemental pro forma information as if the 2017 acquisitions had occurred on January 1, 2016. Year Ended December 31, 2017 2016 (in thousands, except per share amounts) Revenue $214,899 $237,352 Expenses 228,105 242,483 Net loss $(13,206) $(5,131) Net loss attributable to RigNet, Inc. common stockholders $(13,185) $(5,341) Net loss per share attributable to RigNet, Inc. common stockholders: Basic $(0.73) $(0.30) Diluted $(0.73) $(0.30) For the year ended December 31, 2017, RigNet incurred $3.3 million, of acquisition-related costs, which are reported as general andadministrative expenses in the Company’s Consolidated Statements of Comprehensive Loss.Note 4—Goodwill and IntangiblesGoodwillGoodwill resulted from prior acquisitions as the consideration paid for the acquired businesses exceeded the fair value of acquired identifiablenet tangible and intangible assets. The goodwill primarily relates to the growth prospects foreseen for the companies acquired, synergies betweenexisting business and the acquired companies and the assembled workforce of the acquired companies. Goodwill balances and changes therein, byreportable segment, as of and for the years ended December 31, 2018 and 2017 are presented below. ManagedCommunicationServices Applicationsand Internet-of-Things SystemsIntegration Total (in thousands) Balance, January 1, 2017 $21,331 $667 $— $21,998 Acquisition of Cyphre, DTS and ESS 704 13,056 — 13,760 Foreign currency translation 1,330 — — 1,330 Balance, December 31, 2017 23,365 13,723 — 37,088 Acquisition of Intelie, Auto-Comm and SAFCON — 10,744 1,387 12,131 Foreign currency translation (886) (1,702) — (2,588) Balance, December 31, 2018 $22,479 $22,765 $1,387 $46,631 F-21Table of ContentsIntangiblesIntangibles consist of customer relationships, brand name, backlog, technology and licenses acquired as part of the Company’s acquisitions.Intangibles also include internal-use software. The following table reflects intangibles activities for the years ended December 31, 2018 and 2017: Brand Name Backlog CustomerRelation-ships Software Licenses Technology Covenant Notto Compete CustomerContracts Total (in thousands, except estimated lives) Intangibles Acquired 4,353 3,282 22,235 13,615 2,500 — — — 45,985 Accumulated amortization andforeign currency translation, January 1, 2017 (3,120) (3,069) (16,843) (5,591) (1,334) — — — (29,957) Balance, January 1, 2017 1,233 213 5,392 8,024 1,166 — — — 16,028 Additions 1,590 — 10,202 79 — 5,903 3,040 — 20,814 Amortization expense (669) (181) (2,302) (2,517) (286) (551) (253) — (6,759) Foreign currency translation 91 (15) 209 37 — — — — 322 Balance, December 31, 2017 2,245 17 13,501 5,623 880 5,352 2,787 — 30,405 Additions 2,840 — 1,300 236 1,251 8,948 — 191 14,766 Amortization expense (1,036) (17) (3,349) (2,480) (308) (1,787) (608) (191) (9,776) Foreign currency translation (366) (156) 66 — (1,206) — — (1,662) Balance, December 31, 2018 $3,683 $— $11,296 $3,445 $1,823 $11,307 $2,179 $0 $33,733 Weighted average estimated lives(years) 7.0 0 7.0 5.0 15.3 5.0 7.0 0.0 The following table sets forth amortization expense for intangibles over the next five years (in thousands): 2019 7,237 2020 6,243 2021 5,835 2022 5,555 2023 4,911 Thereafter 3,952 $33,733 Note 5—Property, Plant and EquipmentProperty, plant and equipment consists of the following: EstimatedLives December 31, 2018 2017 (in years) (in thousands) Telecommunication and computer equipment 1 - 5 $176,518 $152,480 Furniture and other 5 - 7 10,415 9,544 Building 10 4,419 4,627 Land — 1,378 1,444 192,730 168,095 Less: Accumulated depreciation (129,145) (107,751) $63,585 $60,344 Depreciation expense associated with property, plant and equipment was $23.4 million, $24.1 million and $28.3 million for the years endedDecember 31, 2018, 2017 and 2016, respectively. No impairment to property, plant and equipment was recorded in the years ended December 31,2018, 2017 or 2016. F-22Table of ContentsNote 6—Long-Term DebtAs of December 31, 2018 and 2017, the following credit facilities and long-term debt arrangements with financial institutions were in place: December 31, 2018 2017 (in thousands) Term loan $10,000 $15,000 Revolving loan 67,150 43,400 Unamortized deferred financing costs (315) (497) Capital lease 192 211 77,027 58,114 Less: Current maturities of long-term debt (4,831) (4,814) Current maturities of capital lease (111) (127) $72,085 $53,173 Credit AgreementOn November 6, 2017, the Company entered into its third amended and restated credit agreement with four participating financial institutions.The credit agreement provides for a $15.0 million term loan facility (Term Loan) and an $85.0 million revolving credit facility (RCF) and matures onNovember 6, 2020.The RCF contains a sub-limit of up to $25.0 million for commercial and stand-by letters of credit and performance bonds. The facilities under thecredit agreement are secured by substantially all the assets of the Company.Under the credit agreement, both the Term Loan and RCF bear interest at a rate of LIBOR plus a margin ranging from 1.75% to 2.75% based on aconsolidated leverage ratio defined in the credit agreement. Interest is payable monthly and principal installments of $1.25 million under the TermLoan are due quarterly. The weighted average interest rate for the years ended December 31, 2018 and 2017 were 4.8% and 3.3%, respectively, with aninterest rate of 5.3% at December 31, 2018.Term LoanAs of December 31, 2018, the Term Loan had an outstanding principal balance of $10.0 million, excluding the impact of unamortized deferredfinancing costs.RCFAs of December 31, 2018, $67.2 million in draws remain outstanding under the RCF.Covenants and RestrictionsThe Company’s credit agreement contains certain covenants and restrictions, including restricting the payment of cash dividends under defaultand maintaining certain financial covenants such as a consolidated leverage ratio, defined in the credit agreement, of less than or equal to 2.75 to 1.00and a consolidated fixed charge coverage ratio of not less than 1.25 to 1.00 as of December 31, 2018. If any default occurs related to these covenantsthat is not cured or waived, the unpaid principal and any accrued interest can be declared immediately due and payable. As of December 31, 2018 and2017, the Company believes it was in compliance with all covenants. F-23Table of ContentsPerformance Bonds and Letters of CreditOn September 14, 2012, NesscoInvsat Limited, a subsidiary of RigNet, secured a performance bond facility. On November 6, 2017, this facilitybecame a part of the third amended and restated credit agreement and falls under the $25.0 million sub-limit of the RCF for commercial and standbyletters of credit and performance bonds.As of December 31, 2018, there were no outstanding standby letters of credit. There were $1.8 million of performance bonds outstanding.In June 2016, the Company secured a performance bond facility with a lender in the amount of $1.5 million for its MCS segment. This facilityhas a maturity date of June 2021. The Company maintains restricted cash on a dollar for dollar basis to secure this facility.Deferred Financing CostsThe Company incurred bank fees associated with the credit agreement, and certain amendments hereto, which were capitalized and reported as areduction to long-term debt. Deferred financing costs are expensed using the effective interest method over the life of the agreement. For the yearsended December 31, 2018 and 2017, deferred financing cost amortization of $0.2 million is included in interest expense in the Company’sconsolidated financial statements.Debt MaturitiesThe following table sets forth the aggregate principal maturities of long-term debt, net of deferred financing cost amortization as of December 31,2018(in thousands): 2019 4,942 2020 72,085 Total debt, including current maturities $77,027 Updated Credit AgreementOn February 13, 2019, the Company entered into the first amendment to the third amended and restated credit agreement (Updated CreditAgreement) with four participating financial institutions. The Company refinanced $30.0 million of outstanding draws under the existing$85.0 million RCF with a new $30.0 million term out facility. The Updated Credit Agreement requires a $45.0 million reserve (Specified Reserve)under the RCF that will be released and made available for borrowing for payment of monetary damages from the GX dispute. The Updated CreditAgreement provides for a $15.0 million term loan facility, a $30.0 million term out facility and an $85.0 million revolving credit facility. Therevolving credit facility and term out facility mature on April 6, 2021. The term loan facility matures on December 31, 2020.Under the Updated Credit Agreement, the term loan facility, the term out facility and the revolving credit facility bear interest at a rate of LIBORplus a margin ranging from 1.75% to 3.00% based on a consolidated leverage ratio defined in the Updated Credit Agreement. Interest is payablemonthly and principal installments of $1.25 million under the term loan facility are due quarterly. Principal installments of $1.5 million are duequarterly under the term out facility beginning June 30, 2019. The revolving credit facility contains a sub-limit of up to $25.0 million for commercialand stand-by letters of credit.The Company’s Updated Credit Agreement contains certain covenants and restrictions, including restricting the payment of cash dividendsunder default, and maintaining certain financial covenants such as a consolidated fixed charge coverage ratio of not less than 1.25 to 1.00.Additionally, the Updated Credit Agreement requires a consolidated leverage ratio, as defined in the Updated Credit Agreement, of less than or equalto 2.75 to 1.00 as. The consolidated leverage ratio increases to 3.25 to 1.00 for four quarters starting in the quarter that RigNet makes a final irrevocablepayment of all monetary damages from the GX dispute. The consolidated leverage ratio then decreases to 3.00 to 1.00 for three quarters, and thendecreases 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 andany accrued interest can be declared immediately due and payable. The facilities under the Updated Credit Agreement are secured by substantially allthe assets of the Company. F-24Table of ContentsNote 7—Related Party TransactionsThe Company has a reseller arrangement with Darktrace, which is an artificial intelligence company in cybersecurity that is partially owned byKohlberg Kravis Roberts & Co. L.P. (KKR). KKR is a significant stockholder of the Company. Under the arrangement, the Company will sellDarktrace’s cybersecurity audit services with the Company’s cybersecurity offerings. In the year ended December 31, 2018, the Company purchased$0.1 million from Darktrace in the ordinary course of business.Vissim AS has participated in a competitive request for quote from RigNet in the ordinary course of business. Vissim AS is 24% owned byAVANT Venture Capital AS. AVANT Venture Capital is owned by and has as its chairman of its board one of our board members. Although noamounts were spent with Vissim AS in the year ended December 31, 2018, in the future the Company may spend money with this potential vendor.Note 8—Fair Value MeasurementsThe 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 natureof 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 basedon short-term maturities and recent quoted rates from financial institutions. The estimated fair value of debt was calculated based uponobservable (Level 2) inputs regarding interest rates available to the Company at the end of each respective period.Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants atthe measurement date. For items that are not actively traded, fair value reflects the price in a transaction with a market participant, including anadjustment for risk, not just the mark-to-market value. The fair value measurement standard establishes a fair value hierarchy that prioritizes the inputsto valuation techniques used to measure fair value. As presented in the table below, the hierarchy consists of three broad levels:Level 1—Inputs are unadjusted quoted prices in active markets for identical assets and liabilities and have the highest priority.Level 2—Inputs are observable inputs other than quoted prices considered Level 1. Level 2 inputs are market-based and are directly or indirectlyobservable, including quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that arenot active; or valuation techniques whose inputs are observable. Where observable inputs are available, directly or indirectly, for substantiallythe full term of the asset or liability, the instrument is categorized in Level 2.Level 3—Inputs are unobservable (meaning they reflect the Company’s assumptions regarding how market participants would price the asset orliability based on the best available information) and therefore have the lowest priority.A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair valuemeasurement. RigNet believes it uses appropriate valuation techniques, such as market-based valuation, based on the available inputs to measure thefair values of its assets and liabilities. The Company’s valuation technique maximizes the use of observable inputs and minimizes the use ofunobservable inputs. F-25Table of ContentsThe Company had no derivatives as of December 31, 2018 or 2017.The Company’s non-financial assets, such as goodwill, intangibles and property, plant and equipment, are measured at fair value, based on level3 inputs, when there is an indicator of impairment and recorded at fair value only when an impairment charge is recognized.The earn-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 theConsolidated Statements of Comprehensive Loss. As of December 31, 2018, the fair value of the earn-out was $9.5 million, of which $3.0 million is inother current liabilities and $6.5 million is in other long-term liabilities. During the year ended December 31, 2018, RigNet recognized $1.8 million ofincrease in the fair value and accreted interest expense of $0.1 million on the Intelie earn-out with corresponding increases to other liabilities. Theearn-out is payable in RigNet stock in portions on the first, second and third anniversary of the closing of the acquisition based on certain post-closingperformance targets under the acquisition agreement.The contingent consideration for Cyphre is measured at fair value in each reporting period, based on level 3 inputs, with any change to fair valuerecorded in the Consolidated Statements of Comprehensive Loss. As of December 31, 2018, the fair value of the contingent consideration was$3.7 million, of which $0.3 million is in other current liabilities and $3.4 million is in other long-term liabilities. During the year ended December 31,2018, RigNet recognized a $0.3 million reduction in fair value and accreted interest expense of $0.1 million on the Cyphre contingent considerationwith corresponding changes to other liabilities.The earn-out for Orgtec S.A.P.I. de C.V., d.b.a. TECNOR (TECNOR), acquired in March 2016, was measured at fair value in each reporting period,based on level 3 inputs, with any change to fair value recorded in the Consolidated Statements of Comprehensive Loss. The fair value of the earn-outof $8.0 million was paid in July 2018. The $2.1 million change in fair value in the year ended December 31, 2018 was primarily related to the secondquarter 2018 negotiations with the sellers of TECNOR on the amount of the earn-out. There was a $0.3 million and $1.3 million reduction in fair valueto the TECNOR earn-out in the years ended December 31, 2017 and 2016, respectively, recorded as a reduction of other current liabilities and adecrease to expense in the Corporate segment.Note 9—Commitments and ContingenciesLegal ProceedingsIn August 2017, the Company filed litigation in Harris County District Court and arbitration against one of its former Chief Executive Officersfor, among other things, breach of fiduciary duty, misappropriation of trade secrets, unfair competition and breach of contract. That former executivefiled counterclaims against the Company and one of its independent directors. The parties entered into a settlement agreement resolving all claimsamongst themselves in May 2018 and dismissed the litigation and arbitration proceedings. The Company incurred legal expense of approximately$0.6 million and $0.9 million in connection with this dispute for the year ended December 31, 2018 and 2017, respectively.Global Xpress (GX) DisputeInmarsat plc (Inmarsat), a satellite telecommunications company, filed arbitration with the International Centre for Dispute Resolution tribunal(the panel) in October 2016 concerning a January 2014 take-or-pay agreement to purchase up to $65.0 million, under certain conditions, of GXcapacity from Inmarsat over several years (GX dispute). Phase I of the arbitration, now concluded, concerned only whether RigNet’s take or payobligation ever commenced under the agreement. In December 2018, the panel’s Phase I ruling found that a take-or-pay obligation under a January2014 contract had commenced and that RigNet owed Inmarsat $50.8 million, subject to any offsets from RigNet’s counterclaims in Phase II of thearbitration. The Phase I ruling is an interim ruling, and RigNet is not required to pay any amounts to Inmarsat until the panel rules on Phase IIcounterclaims. The Company currently expects a Phase II ruling in the second half of 2019. F-26Table of ContentsThe Company has an accrued liability of $50.8 million, based on the Phase I interim award amount. While management believes it has strongcounterclaims, which will be heard in Phase II and could reduce the ultimate liability, the amount of the final award is not estimable at this time. Noassurance can be given as to the ultimate outcome of the GX dispute, and the ultimate outcome may differ from the accrued amount. Based on theinformation available at this time, the potential final loss could be based on the Phase I ruling less any offsets from RigNet’s counterclaims in Phase IIof the arbitration offset by any potential counterclaims by Inmarsat, including interest and fees. As such, the range of the ultimate liability is currentlynot estimable.During the year ended December 31, 2018, the Company has accrued $50.6 million of expense, net of approximately $0.2 million of prioraccruals, in the Corporate segment. The Company has incurred legal expenses of $2.2 million and $1.6 million in connection with the GX dispute forthe years ended December 31, 2018 and 2017, respectively. The Company may continue to incur significant legal fees, related expenses andmanagement time in the future.Other LitigationThe Company, in the ordinary course of business, is a claimant or a defendant in various legal proceedings, including proceedings as to whichthe Company has insurance coverage and those that may involve the filing of liens against the Company or its assets.Sales Tax AuditThe Company is undergoing a routine sales tax audit from a state where the Company has operations. The audit can cover up to a four-yearperiod. The Company is in the early stages of the audit, and does not have any estimates of further exposure, if any, for the tax years under review.Contractual DisputeThe Company’s Systems Integration business reached a settlement in the first quarter of 2016 related to a contract dispute associated with apercentage of completion project. The dispute related to the payment for work related to certain change orders. After the settlement, the Companyrecognized $2.3 million of gain in the first quarter of 2016. In the fourth quarter of 2016, the Company issued additional billings for approximately$1.0 million related to work performed in prior years under the contract. After the collection of this final billing in the fourth quarter of 2016, theCompany received the certificate of final acceptance from the customer acknowledging completion of the project. The total loss incurred over the lifeof this project amounted to $11.2 million.The Company incurred legal expense of $0.2 million in connection with the dispute for the year ended December 31, 2016.Regulatory MatterIn 2013, RigNet’s internal compliance program detected potential violations of U.S. sanctions by one of its foreign subsidiaries in connectionwith certain of its customers’ rigs that were moved into the territorial waters of countries sanctioned by the United States. The Company estimates thatit received total revenue of approximately $0.1 million during the period related to the potential violations. The Company voluntarily self-reported thepotential violations to the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) and the U.S. Department of Commerce Bureau ofIndustry and Security (BIS) and retained outside counsel who conducted an investigation of the matter under the supervision of the Company’s AuditCommittee and submitted a report to OFAC and BIS.The Company incurred legal expenses of $0.1 million in connection with the investigation during the year ended December 31, 2016.In the third quarter of 2016, the Company received a letter from BIS notifying the Company that it had concluded its investigation. BIS assessedno fines or penalties on the Company in connection with the matter. The Company does not anticipate any penalties or fines will be assessed as a resultof the matter. As such, the Company released the previously accrued estimated liability of $0.8 million resulting in a decrease of general andadministrative expense for the year ended December 31, 2016 in the MCS segment. F-27Table of ContentsOperating LeasesThe Company leases office space under lease agreements expiring on various dates through 2025. The Company recognized expense underoperating leases of $2.8 million, $4.0 million and $4.7 million for the years ended December 31, 2018, 2017 and 2016, respectively.As of December 31, 2018, future minimum lease obligations were as follows (in thousands): 2019 1,822 2020 1,115 2021 780 2022 692 2023 659 Thereafter 1,044 $6,112 Commercial CommitmentsThe Company enters into contracts for satellite bandwidth and other network services with certain providers.As of December 31, 2018, the Company had the following commercial commitments related to satellite and network services (in thousands): 2019 10,600 2020 1,010 2021 108 $11,718 The Company is no longer reporting $65.0 million in the above table for capacity from Inmarsat’s GX network. Please see paragraph “GlobalExpress (GX) Dispute” above for details of the ongoing arbitration.Note 10—Stock-Based CompensationThe Company has two stock-based compensation plans as described below.2010 Omnibus Incentive PlanIn May 2010, the Board of Directors adopted the 2010 Omnibus Incentive Plan (2010 Plan). Under the 2010 Plan, the Board of Directors or itsdesignated committee is authorized to issue awards representing a total of four million shares of common stock to certain directors, officers andemployees of the Company. Awards may be in the form of new stock incentive awards or options including (i) incentive or non-qualified stock options,(ii) stock appreciation rights, (iii) restricted stock, (iv) restricted stock units (RSUs), (v) performance stock, (vi) performance share units (PSUs), (vii)director awards, (viii) annual cash incentive awards, (ix) cash-based awards, (x) substitution awards or (xi) other stock-based awards, as approved by theBoard of Directors or its designated committee. Options granted under the 2010 Plan will generally expire at the earlier of a specified period aftertermination of service or the date specified by the Board of Directors or its designated committee at the date of grant, but not more than ten years fromsuch grant date. F-28Table of ContentsDuring the year ended December 31, 2018, the Company granted 59,703 stock options with an average exercise price of $13.50 to certainofficers and employees of the Company under the 2010 Plan. Options granted have a contractual term of ten years and vest over a four-year period ofcontinued employment, with 25% of the options vesting on each of the first four anniversaries of the grant date. As of December 31, 2018, theCompany has issued 1,204,813 options under the 2010 Plan, of which 193,441 options have been exercised, 691,766 options have been returned orforfeited and 319,606 options remain outstanding under the 2010 Plan.During the year ended December 31, 2018 in addition to the options described above, the Company granted a total of 459,497 stock-basedawards to certain directors, officers and employees of the Company under the 2010 Plan. Of these, the Company granted (i) 158,503 restricted stockunits (RSUs) to certain officers and employees that generally vest over a four-year period of continued employment, with 25% of the RSUs vesting oneach of the first four anniversaries of the grant date, (ii) 17,380 RSUs to certain officers and employees that generally vest over a two year period ofcontinued employment, with 50% of the RSUs vesting on each of the first two anniversaries of the grant date, (iii) 48,179 RSUs to outside directors thatvest in 2019, (iv) 157,442 unrestricted stock grants to certain officers and employees that vested immediately and (v) 77,993 performance share units(PSUs) to certain officers and employees that generally cliff vest on the third anniversary of the grant date and are subject to continued employmentand certain performance based targets. The ultimate number of PSUs issued is based on a multiple determined by the achievement of certainperformance-based targets. As of December 31, 2018, 782,506 RSUs and shares of restricted stock have vested, 667,246 RSUs and shares of restrictedstock have been forfeited and 395,265 unvested RSUs and shares of restricted stock were outstanding under the 2010 Plan.2006 Long-Term Incentive PlanIn March 2006, the Board of Directors adopted the RigNet 2006 Long-Term Incentive Plan (2006 Plan). Under the 2006 Plan, the Board ofDirectors is authorized to issue options to purchase RigNet common stock to certain officers and employees of the Company. In general, all optionsgranted under the 2006 Plan have a contractual term of ten years and a four-year vesting period, with 25.0% of the options vesting on each of the firstfour anniversaries of the grant date. The 2006 Plan authorized the issuance of three million options, which was increased to five million in January2010, net of any options returned or forfeited. As of December 31, 2018, the Company has granted options to purchase 981,125 shares under the 2006Plan, of which 754,878 options have been exercised, 221,872 options have been returned or forfeited and 4,375 options remain outstanding. TheCompany will grant no additional options under the 2006 Plan as the Company’s Board of Directors froze the 2006 Plan.The Company does not accrue or pay dividends with regard to any equity awards.Stock-based compensation expense related to the Company’s stock-based compensation plans for the years ended December 31, 2018, 2017 and2016 was $4.7 million, $3.7 million and $3.4 million, respectively, and accordingly, reduced income for each year.There were no significant modifications to the two stock-based compensation plans during the years ended December 31, 2018, 2017 or 2016. Asof December 31, 2018 and 2017, there were $3.3 million and $6.5 million, respectively, of total unrecognized compensation cost related to unvestedequity awards granted and expected to vest under the 2010 Plan. This cost is expected to be recognized on a remaining weighted-average period of twoyears.All outstanding equity instruments are settled in stock. The Company currently does not have any awards accounted for as a liability. The fairvalue of each stock option award is estimated on the grant date using a Black-Scholes option valuation model, which uses certain assumptions as of thedate of grant: • Expected Volatility—based on peer group price volatility for periods equivalent to the expected term of the options • Expected Term—expected life adjusted based on management’s best estimate for the effects of non-transferability, exercise restriction andbehavioral considerations • Risk-Free Interest Rate—risk-free rate, for periods within the contractual terms of the options, is based on the U.S. Treasury yield curve ineffect at the time of grant • Dividend Yield—expected dividends based on the Company’s historical dividend rate at the date of grant F-29Table of ContentsNo options were granted in 2017. The assumptions used for grants made in the years ended December 31, 2018 and 2016 were as follows: Year Ended December 31, 2018 2016 Expected volatility 48% 49% Expected term (in years) 7 7 Risk-free interest rate 2.8% 1.6 - 1.7% Dividend yield — — Based on these assumptions, the weighted average grant date fair value of stock options granted, per share, for the year ended December 31, 2018and 2016 was $7.14 and $6.56, respectively.The fair value of each RSU and PSU award on the grant date is equal to the market price of RigNet’s stock on the date of grant. The weightedaverage fair value of RSUs, PSUs and restricted stock granted, per share, for the years ended December 31, 2018, 2017 and 2016 was $14.22, $19.68and $12.45 respectively.The following table summarizes the Company’s stock option activity as of and for the years ended December 31, 2018, 2017 and 2016: Year Ended December 31, 2018 2017 2016 Number ofUnderlyingShares WeightedAverageExercisePrice Number ofUnderlyingShares WeightedAverageExercisePrice Number ofUnderlyingShares WeightedAverageExercisePrice (in thousands, except per share amounts) Balance, January 1, 381 $21.37 499 $20.77 992 $20.40 Granted 60 $13.50 — $— 112 $12.80 Exercised (60) $16.15 (70) $13.04 (223) $8.73 Forfeited (53) $23.89 (47) $27.11 (382) $26.29 Expired (4) $6.55 (1) $8.32 — $— Balance, December 31, 324 $20.41 381 $21.37 499 $20.77 Exercisable, December 31, 204 $23.41 224 $21.28 240 $18.02 Year Ended December 31, 2018 2017 2016 (in thousands) Intrinsic value of options exercised $1,297 $1,286 $591 Fair value of options vested $950 $837 $1,455 The following table summarizes the Company’s RSU, PSU and restricted stock activity as of and for the years ended December 31, 2018 and2017: Year Ended December 31, 2018 2017 (in thousands) Balance, January 1, 436 494 Granted 459 232 Vested (337) (110) Forfeited (147) (180) Balance, December 31, 411 436 F-30Table of ContentsThe weighted average remaining contractual term in years for equity awards outstanding as of and for the years ended December 31, 2018, 2017and 2016 was 1.7 years, 1.7 years and 2.8 years, respectively. At December 31, 2018 equity awards vested and expected to vest totaled 2.7 million withawards available for grant of approximately 2.2 million.The following is a summary of changes in unvested equity awards, including stock options, RSUs, PSUs and restricted stock, as of and for theyears ended December 31, 2018, 2017 and 2016: Number ofUnderlyingShares WeightedAverage GrantDate Fair Value (in thousands) Unvested equity awards, January 1, 2016 506 $21.48 Granted 753 $11.57 Vested (169) $18.34 Forfeited (617) $13.97 Unvested equity awards, December 31, 2016 473 $16.62 Granted 232 $19.42 Vested (182) $14.16 Forfeited (227) $11.66 Unvested equity awards, December 31, 2017 296 $24.13 Granted 519 $14.03 Vested (259) $22.03 Forfeited (200) $12.41 Unvested equity awards, December 31, 2018 356 $17.52 Note 11—Earnings (loss) per ShareBasic earnings (loss) per share (EPS) are computed by dividing net loss attributable to RigNet common stockholders by the number of basicshares outstanding. Basic shares equal the total of the common shares outstanding, weighted for the average days outstanding for the period. Basicshares exclude the dilutive effect of common shares that could potentially be issued due to exercise of stock options, vesting of restricted stock, RSUsor PSUs. Diluted EPS is computed by dividing loss attributable to RigNet common stockholders by the number of diluted shares outstanding. Dilutedshares equal the total of the basic shares outstanding and all potentially issuable shares, other than antidilutive shares, if any, weighted for the averagedays outstanding for the period. The Company uses the treasury stock method to determine the dilutive effect. In periods when a net loss is reported, allcommon stock equivalents are excluded from the calculation because they would have an anti-dilutive effect, meaning the loss per share would bereduced. Therefore, in periods when a loss is reported, basic and dilutive loss per share are the same. The following table provides a reconciliation ofthe numerators and denominators of the basic and diluted per share computations for net income attributable to RigNet, Inc. common stockholders: Year Ended December 31, 2018 2017 2016 (in thousands) Net loss attributable to RigNet, Inc. common stockholders $(62,453) $(16,176) $(11,507) Weighted average shares outstanding, basic 18,713 18,009 17,768 Effect of dilutive securities — — — Weighted average shares outstanding, diluted 18,713 18,009 17,768 F-31Table of ContentsAs of December 31, 2018, there were approximately 573,481 potentially issuable shares excluded from the Company’s calculation of diluted EPSthat were excluded because the Company incurred a loss in the period and to include them would have been anti-dilutive.As of December 31, 2017, there were approximately 625,039 potentially issuable shares excluded from the Company’s calculation of diluted EPSthat were excluded because the Company incurred a loss in the period and to include them would have been anti-dilutive.As of December 31, 2016, there were approximately 1,120,400 potentially issuable shares excluded from the Company’s calculation of dilutedEPS that were excluded because the Company incurred a loss in the period and to include them would have been anti-dilutive.Note 12—Segment InformationSegment information has been prepared consistent with the components of the enterprise for which separate financial information is availableand regularly evaluated by the chief operating decision-maker for the purpose of allocating resources and assessing performance. ManagedCommunications was renamed Managed Communications Services (MCS).RigNet considers its business to consist of the following segments: • Managed Communications Services (MCS). The MCS segment provides remote communications, telephony and technology services foroffshore and onshore drilling rigs and production facilities, support vessels, and other remote sites. • Applications and Internet-of-Things (Apps & IoT). The Apps & IoT segment provides applications over-the-top of the network layerincluding Software as a Service (SaaS) offerings such as cybersecurity, applications for safety and workforce productivity such as weathermonitoring primarily in the North Sea (MetOcean), a real-time machine learning and AI data platform (Intelie Pipes and Intelie LIVE) andcertain other value-added services such as Adaptive Video Intelligence (AVI). This segment also includes the private machine-to-machineIoT 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 telecommunicationssystems. 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 andmaintenance.Corporate and eliminations primarily represents unallocated executive and support activities, interest expense, income taxes, eliminations, theGX dispute and change in fair value of earn-out/contingent consideration. F-32Table of ContentsThe Company’s reportable segment information as of and for the years ended December 31, 2018, 2017 and 2016 is presented below. ManagedCommunicationServices Applicationsand Internet-of-Things SystemsIntegration Corporate andEliminations ConsolidatedTotal (in thousands) 2018 Revenue $171,574 $25,713 $41,567 $— $238,854 Cost of revenue (excluding depreciation andamortization) 105,101 13,386 28,116 — 146,603 Depreciation and amortization 22,759 4,570 2,511 3,314 33,154 Change in fair value of earn-out/contingentconsideration — — — 3,543 3,543 GX dispute — — — 50,612 50,612 Selling, general and administrative 16,448 1,961 1,698 45,930 66,037 Operating income (loss) $27,266 $5,796 $9,242 $(103,399) $(61,095) Total assets 171,503 47,175 24,094 16,153 258,925 Capital expenditures 29,058 759 — 706 30,523 2017 Revenue $164,238 $15,626 $25,028 $— $204,892 Cost of revenue (excluding depreciation andamortization) 101,681 10,751 18,734 — 131,166 Depreciation and amortization 23,202 1,738 2,438 3,467 30,845 Change in fair value of earn-out/contingentconsideration — — — (320) (320) Selling, general and administrative 16,841 1,685 1,403 33,260 53,189 Operating income (loss) $22,514 $1,452 $2,453 $(36,407) $(9,988) Total assets 181,157 32,464 16,708 (235) 230,094 Capital expenditures 17,066 198 — 645 17,909 2016 Revenue $192,538 $6,495 $21,590 $— $220,623 Cost of revenue (excluding depreciation andamortization) 112,046 2,703 15,010 — 129,759 Depreciation and amortization 26,581 — 2,712 4,263 33,556 Impairment of intangibles — — — 397 397 Change in fair value of earn-out/contingentconsideration — — — (1,279) (1,279) Selling, general and administrative 28,422 268 2,665 29,286 60,641 Operating income (loss) $25,489 $3,524 $1,203 $(32,667) $(2,451) Total assets 203,048 — 26,169 1,755 230,972 Capital expenditures 13,794 — — 1,403 15,197 F-33Table of ContentsThe following table presents revenue earned from the Company’s domestic and international operations for the years ended December 31, 2018,2017 and 2016. Revenue is based on the location where services are provided or goods are sold. Due to the mobile nature of RigNet’s customer baseand the services provided, the Company works closely with its customers to ensure rig or vessel moves are closely monitored to ensure location ofservice information is properly reflected. Year Ended December 31, 2018 2017 2016 (in thousands) Domestic $106,189 $63,460 $66,028 International 132,665 141,432 154,595 Total $238,854 $204,892 $220,623 The following table presents goodwill and long-lived assets for the Company’s domestic and international operations as of December 31, 2018and 2017. December 31, 2018 2017 (in thousands) Domestic $73,615 $68,942 International 70,334 58,895 Total $143,949 $127,837 Note 13—Income TaxesIncome Tax ExpenseThe components of the income tax expense are: Year Ended December 31, 2018 2017 2016 (in thousands) Current: Federal $— $— $23 State 659 495 43 Foreign 4,174 2,638 4,386 Total current 4,833 3,133 4,452 Deferred: Federal (411) (2,020) 458 State (1) (8) 419 Foreign (7,167) 2,367 496 Total deferred (7,579) 339 1,373 Income tax expense (benefit) $(2,746) $3,472 $5,825 F-34Table of ContentsThe following table sets forth the components of income (loss) before income taxes: Year Ended December 31, 2018 2017 2016 (in thousands) Income (loss) before income taxes: United States $(63,266) $(15,019) $(18,361) Foreign (1,794) 2,294 12,889 $(65,060) $(12,725) $(5,472) Income tax expense differs from the amount computed by applying the 2018 statutory federal income tax rate of 21.0% and the 2017 and 2016statutory federal income tax rate of 35% to income (loss) before taxes as follows: Year Ended December 31, 2018 2017 2016 (in thousands) United States statutory federal income tax rate $(13,663) $(4,454) $(1,915) Non-deductible expenses 592 (294) 290 Deferred earnout adjustments 1,253 — — Noncash compensation 359 (30) 761 U.S. tax on foreign earnings, net of tax credits — (1,283) 587 Changes in valuation allowances 7,920 (5,956) 6,681 Tax credits (1,025) (699) (4,403) State taxes 74 224 53 Effect of operating in foreign jurisdictions 1,545 2,101 1,818 Deemed repatriation transition tax — 3,807 — Reduction of federal corporate tax rate 1,823 8,190 — Changes in prior year estimates (66) (26) 293 Changes in uncertain tax benefits (1,506) 1,798 1,243 Revisions of deferred tax accounts (56) (10) 313 Other 4 104 104 Income tax expense (benefit) $(2,746) $3,472 $5,825 F-35Table of ContentsDeferred Tax Assets and LiabilitiesThe Company’s deferred tax position reflects the net tax effects of the temporary differences between the carrying amounts of assets andliabilities for financial reporting purposes and the amounts used for income tax reporting. Significant components of the deferred tax assets andliabilities are as follows: December 31, 2018 2017 (in thousands) Deferred tax assets: Net operating loss carryforwards $17,934 $15,598 Federal, state and foreign tax credits 13,042 17,833 Depreciation and amortization 12,359 13,009 Unrealized loss on functional currency 1,203 565 Allowance for doubtful accounts 1,221 704 Accruals not currently deductible 12,559 1,027 Stock-based compensation 755 812 Intercompany interest 1,779 1,985 Other 193 351 Valuation allowance (51,316) (45,129) Total deferred tax assets 9,729 6,755 Deferred tax liabilities: Depreciation and amortization (2,342) (605) Tax on foreign earnings — — Other (398) (280) Total deferred tax liabilities (2,740) (885) Net deferred tax assets $6,989 $5,870 As of December 31, 2018, the Company’s as filed net operating loss and tax credit carryforwards were as follows: Jurisdiction ExpirationPeriodBegins Net OperatingLossCarryforwards Tax CreditCarryforwards (in thousands) U.S. Federal 2036 $20,263 $— U.S. Federal Indefinite 5,728 — U.S. Federal 2020 — 9,930 U.S. State 2020 6,763 — Non-U.S. Indefinite 49,141 — Non-U.S. 2019 1,607 — $83,502 $9,930 F-36Table of ContentsAs of December 31, 2018, the Company’s valuation allowances were as follows: Jurisdiction ValuationAllowances (in thousands) United States $38,450 Norway 10,093 United Kingdom 2,466 Other 307 $51,316 The amount reported on an as filed basis can differ from the amount recorded in the deferred tax assets of the Company’s financial statements dueto the utilization or creation of assets in recording uncertain tax benefits.In assessing deferred tax assets, the Company considers whether a valuation allowance should be recorded for some or all of the deferred taxassets which may not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during theperiods in which the temporary differences become deductible. Among other items, the Company considers the scheduled reversal of deferred taxliabilities, projected future taxable income and available tax planning strategies. While the Company expects to realize the remaining net deferred taxassets, changes in future taxable income or in tax laws may alter this expectation and result in future increases to the valuation allowance.During 2018, the Company released the valuation allowance of $4.2 million in Australia. Management determined that sufficient positiveevidence exists to conclude that it is more likely than not that the deferred tax assets will be realized in the future.As of December 31, 2018, the Company intends to continue reinvesting earnings outside of the United States for the foreseeable future. Thisdetermination is based on estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and on its specific planfor reinvestment of the foreign subsidiaries’ undistributed earnings, with the exception of RigNet Qatar W.L.L. The Company did recognize U.S. taxeson the one-time repatriation tax due under the 2017 Tax Cuts and Jobs Act. While the Company does not expect to repatriate cash to the United States,if these amounts were distributed in the form of dividends or otherwise, the Company may be subject to additional tax liabilities with respect to itemssuch as certain foreign exchange gains or losses, withholding taxes or state taxes It is not practicable at this time to determine the amount ofunrecognized deferred tax liabilities with respect to the reinvested foreign earnings.Corporate Tax ReformOn December 22, 2017 the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (The TaxAct), 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 measurementperiod that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. Inaccordance 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 iscomplete. 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 reasonableestimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in thefinancial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before theenactment of the Tax Act. F-37Table of ContentsDuring 2018, the Company has completed the accounting for the income tax effects of the Tax Act based on current regulations and availableinformation. Any additional guidance issued by the IRS could impact our recorded amounts in future periods.. The adjustments related to The Tax Actare recorded 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 todeferred tax expense related to the US federal corporate tax rate reduction. The Department of Treasury and the Internal Revenue Service issuedproposed regulations in 2018 which provided additional guidance on the provisions of the Transition Tax under Section 965, including the electionnot to apply net operating loss deductions against the Transition Tax. The Company elected to apply foreign tax credits against the Transition Taxrather than current year operating losses. Due to utilizing credits rather than current operating losses, the Company recorded an additional decrease of$1.8 million to deferred tax expense and assets in 2018; however, since the Company recognizes a full valuation on the deferred tax asset, there is noimpact to the 2018 federal tax provision. The Company considers this item complete.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. The Department of Treasury and the Internal Revenue Service issuedproposed regulations in 2018 which provided additional guidance on the provisions of the Transition Tax under Section 965, including the electionnot to apply net operating loss deductions against the Transition Tax. The Company elected to apply foreign tax credits against the Transition Taxrather than current year operating losses. The final Transition Tax obligation of $4.0 million is fully offset by foreign tax credits. The Companyconsiders this item complete.Global Intangible Low Taxed Income (GILTI): In the fourth quarter of 2017, the Company was not able to reasonably estimate the effects forGILTI. Therefore, no provisional adjustment was recorded. 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 accountingpolicy 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. The Company has elected to treat any future U.S. inclusionsin taxable income related to GILTI as a current-period expense when incurred (the period cost method). The Company prepared an estimate for 2018,which resulted in no GILTI impact. The Company considers this item complete.Uncertain Tax BenefitsThe Company evaluates its tax positions and recognizes only tax benefits that, more likely than not, will be sustained upon examination,including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax position is measured at thelargest amount of benefit that has a greater than 50.0% likelihood of being realized upon settlement. At December 31, 2018, 2017 and 2016, theCompany’s uncertain tax benefits totaling $16.1 million, $18.8 million and $21.8 million, respectively, are reported as other liabilities in theconsolidated balance sheets. Changes in the Company’s gross unrecognized tax benefits are as follows: Year Ended December 31, 2018 2017 2016 (in thousands) Balance, January 1, $9,637 $13,244 $15,718 Additions for the current year tax — — 794 Additions related to prior years — 110 602 Reductions related to settlements with taxing authorities — — (3,701) Reductions related to lapses in statue of limitations (1,262) (327) (169) Reductions related to prior years (878) (3,390) — Balance, December 31, $7,497 $9,637 $13,244 F-38Table of ContentsAs of December 31, 2018, the Company’s gross unrecognized tax benefits which would impact the annual effective tax rate upon recognitionwere $7.5 million. In addition, as of December 31, 2018, the Company has recorded related assets, net of a valuation allowance of $1.1 million. Therelated asset might not be recognized in the same period as the contingent tax liability and like interest and penalties does have an impact on theannual effective tax rate. The Company has elected to include income tax related interest and penalties as a component of income tax expense. As ofDecember 31, 2018, 2017 and 2016, the Company has accrued penalties and interest of approximately $8.6 million, $9.2 million and $8.8 million,respectively. The Company has recognized ($0.6) million, $0.3 million and $1.6 million of interest and penalties in income tax expense for the yearsended December 31, 2018, 2017 and 2016, respectively. To the extent interest and penalties are not assessed with respect to uncertain tax positions,accruals will be reduced and reflected as a reduction to income tax expense.The Company believes that it is reasonably possible that a decrease of up to $3.3 million in unrecognized tax benefits, including related interestand penalties, may be necessary within the coming year due to lapse in statute of limitations.The Company files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. All of the Company’s federalfilings are still subject to tax examinations. With few exceptions, the Company is no longer subject to the foreign income tax examinations by taxauthorities for years before 2008.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 appealsprocess, 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 anypotential settlement or outcome of the audit at this time. F-39Table of ContentsNote 14—Supplemental Quarterly Financial Information (Unaudited)Summarized quarterly supplemental consolidated financial information for 2018 and 2017 are as follows: 2018 Quarter Ended March 31 June 30 September 30 December 31 (in thousands, except per share data) Revenue $53,833 $60,007 $64,770 $60,244 Operating loss $(4,470) $(4,330) $(1,021) $(51,274) Net loss $(5,526) $(4,299) $(2,798) $(49,691) Net loss attributable to RigNet, Inc. common stockholders $(5,556) $(4,329) $(2,847) $(49,721) Net loss per share attributable to RigNet, Inc. common stockholders, basic $(0.31) $(0.23) $(0.15) $(2.62) Net loss per share attributable to RigNet, Inc. common stockholders, diluted $(0.31) $(0.23) $(0.15) $(2.62) Weighted average shares outstanding, basic 18,146 18,639 18,905 18,948 Weighted average shares outstanding, diluted 18,146 18,639 18,905 18,948 2017 Quarter Ended March 31 June 30 September 30 December 31 (in thousands, except per share data) Revenue $48,072 $49,162 $50,844 $56,814 Operating loss $(1,067) $(3,438) $(2,951) $(2,532) Net loss $(1,987) $(4,210) $(4,193) $(5,807) Net loss attributable to RigNet, Inc. common stockholders $(2,026) $(4,249) $(4,232) $(5,669) Net loss per share attributable to RigNet, Inc. common stockholders, basic $(0.11) $(0.24) $(0.23) $(0.31) Net loss per share attributable to RigNet, Inc. common stockholders, diluted $(0.11) $(0.24) $(0.23) $(0.31) Weighted average shares outstanding, basic 17,873 17,985 18,086 18,090 Weighted average shares outstanding, diluted 17,873 17,985 18,086 18,090 Note—The Quarter Ended December 31, 2018 includes a net $50.6 million expense accrual for the GX dispute reported in general andadministrative expense. See a more complete discussion of the GX Dispute in Note 9 of the Notes to Consolidated Financial Statements and inItem 3, Legal Proceedings of this Annual Report on Form 10-K. F-40Table of ContentsNote 15 – Employee BenefitsThe Company maintains a 401(k)-plan pursuant to which eligible employees may make contributions through a payroll deduction.Effective January 1, 2018, the Company re-instated the 401(k) match under which the Company will make matching cash contributions of 100%of each employee’s contribution up to 3.0% of that employee’s eligible compensation and 50% of each employee’s contribution between 3.0% and5.0% of such employee’s eligible compensation, up to the maximum amount permitted by law. The Company incurred expenses of $0.8 million, noneand none for the years ended December 31, 2018, 2017 and 2016, respectively, for employer contributions.Note 16 – Restructuring Costs – Cost Reduction PlansDuring the year ended December 31, 2018, the Company incurred a net pre-tax restructuring expense of $0.8 million reported as general andadministrative expense in the Corporate segment associated with the reduction of 23 employees.During the year ended December 31, 2017, the Company incurred a net pre-tax restructuring expense of $0.8 million reported as general andadministrative expense in the Corporate segment associated with the reduction of 31 employees.During the year ended December 31, 2016, the Company incurred net pre-tax restructuring expense of $1.9 million reported as general andadministrative expense in the Corporate segment consisting of $3.3 million associated with the reduction of 148 employees partially offset by a net$1.4 million release of previously accrued restructuring charges. F-41Table of ContentsNote 17 –Executive Departure costsCharles “Chip” Schneider, the prior Senior Vice President and Chief Financial Officer, departed the Company effective December 27, 2017. OnAugust 20, 2018, Lee M. Ahlstrom was named Senior Vice President and Chief Financial Officer.Marty Jimmerson, the Company’s former CFO, served as Interim CEO and President from January 7, 2016 to May 31, 2016, to replace MarkSlaughter, the prior CEO and President. Mr. Jimmerson departed the Company on June 1, 2016. On May 31, 2016, Steven E. Pickett was named ChiefExecutive Officer (CEO) and President of the Company.In connection with these executive departures, the Company incurred executive departure expense of $0.4 million, $1.2 million and $1.9 millionfor the years ended December 31, 2018, 2017 and 2016, respectively, in the corporate segment. F-42Exhibit 21.1RigNet, Inc. SubsidiariesEntity NameAutomation Communications Engineering Corp.Safety Controls, Inc.Cyphre Security Solutions LLCIntelie Solucoes em Informatica S.A.RigNet Mozambique LimitadaRigNet Ghana LimitedRigNet SatCom, Inc.LandTel, Inc.LandTel Communications, L.L.C.ComPetro Communications Holdings LLCComPetro Communications LLCRigNet Luxembourg Holdings S.ár.l.RigNet Global Holdings S.ár.l.RigNet AS(formerly known as RigNet E.H. Holding Company AS)RigNet UK Holdings LimitedRigNet UK LimitedNesscoInvsat LimitedRigNet Pte LtdRigNet Sdn. Bhd.RigNet Australia Pty LtdRigNet Qatar W.L.L.ComPetro Comunicações Holdings do Brasil LtdaRigNet Serviços de Telecomunicações Brasil Ltda.RigNet Middle East LLCRigNet (CA), Inc.RigNet BRN SDN BHDShabakat Rafedain Al Iraq Al Jadeed for Trade in Communication Equipment and Devices LLCRigNet Company for Communication Services LtdRNET Properties LLCRigNet Newco, Inc.RigNet Holdings, LLCRigNet EIS, Inc.RigNet Middle East – FZERigNet AP Facilities & Services Limited (NGA)RigNet Angola, LDAMunaicom LLPRigNet Mobile Solutions Limited 1RigNet, Inc. SubsidiariesRigNet de MexicoRNSAT Services de MexicoOrgtec, S.A.P.I. de C.V.RigNet Russia, LLC 2Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in Registration Statements No. 333-171278 and 333-211471 on Form S-8, and Registration StatementNo. 333-217867 on Form S-3, of our reports dated March 15, 2019, relating to the consolidated financial statements of RigNet, Inc. and subsidiaries(the “Company”), and the effectiveness of the Company’s internal control over financial reporting, appearing in the Annual Report on Form 10-K ofRigNet, Inc. and subsidiaries for the year ended December 31, 2018./s/ DELOITTE & TOUCHE LLPHouston, TexasMarch 15, 2019Exhibit 31.1CERTIFICATION OFCHIEF EXECUTIVE OFFICEROF RIGNET, INC.PURSUANT TO 15 U.S.C. SECTION 7241, AS ADOPTEDPURSUANT TO SECTION 302 OF THESARBANES-OXLEY ACT OF 2002I, Steven E. Pickett, certify that: 1.I have reviewed this Annual Report on Form 10-K of RigNet, Inc. (the “Registrant”); 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4.The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared; b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c.evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and d.disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s mostrecent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the Registrant’s internal control over financial reporting; and 5.The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe Registrant’s auditors and the audit committee of the Registrant’s Board of Directors (or persons performing the equivalent functions): a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and b.any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internalcontrol over financial reporting. By: /s/ STEVEN E. PICKETT Steven E. PickettChief Executive Officer and PresidentDate: March 15, 2019Exhibit 31.2CERTIFICATION OFCHIEF FINANCIAL OFFICEROF RIGNET, INC.PURSUANT TO 15 U.S.C. SECTION 7241, AS ADOPTEDPURSUANT TO SECTION 302 OF THESARBANES-OXLEY ACT OF 2002I, Lee Ahlstrom, certify that: 1.I have reviewed this Annual Report on Form 10-K of RigNet, Inc. (the “Registrant”); 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4.The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared; b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c.evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and d.disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s mostrecent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the Registrant’s internal control over financial reporting; and 5.The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe Registrant’s auditors and the audit committee of the Registrant’s Board of Directors (or persons performing the equivalent functions): a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and b.any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internalcontrol over financial reporting. By: /s/ LEE AHLSTROM Lee AhlstromChief Financial OfficerDate: March 15, 2019Exhibit 32.1CERTIFICATION OFCHIEF EXECUTIVE OFFICEROF RIGNET, INC.PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTEDPURSUANT TO SECTION 906 OF THESARBANES-OXLEY ACT OF 2002In connection with the accompanying Annual Report on Form 10-K for the period ended December 31, 2018 filed with the Securities and ExchangeCommission on the date hereof (the “Report”), I, Steven E. Pickett, Chief Executive Officer of RigNet, Inc. (the “Company”), hereby certify, to myknowledge, that: 1.the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2.the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 15, 2019 /s/ STEVEN E. PICKETT Steven E. PickettChief Executive Officer and PresidentExhibit 32.2CERTIFICATION OFCHIEF FINANCIAL OFFICEROF RIGNET, INC.PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTEDPURSUANT TO SECTION 906 OF THESARBANES-OXLEY ACT OF 2002In connection with the accompanying Annual Report on Form 10-K for the period ended December 31, 2018 filed with the Securities and ExchangeCommission on the date hereof (the “Report”), I, Lee Ahlstrom, Chief Financial Officer, of RigNet, Inc. (the “Company”), hereby certify, to myknowledge, that: 1.the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2.the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 15, 2019 /s/ LEE AHLSTROM Lee AhlstromChief Financial Officer

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