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Persistently weak oil prices are forcing oil and gas companies to push spending lower, especially on offshore developments. That is putting significant pressure on RigNet's (NASDAQ: RNET) quarterly results, which continued to decline in the second quarter. Given the current outlook for the offshore market, it could be quite some time before the market improves and provides a boost to RigNet's operations.
RigNet results: The raw numbers
Data source: RigNet Inc.
What happened with RigNet this quarter?
The oil market downturn continues to weigh on RigNet:
- Managed service revenue slumped 22.4% to $50.2 million due to the reduction in investment by oil and gas producers on upstream drilling projects amid the current slump in oil prices.
- Telecoms systems integration revenue plunged 54.7% to $4.7 million, also due to the oil market downturn.
- That revenue decline weighed on underlying earnings, with the company's adjusted EBITDA slumping 19.6%. That said, adjusted EBITDA did not drop as deeply as revenue due to the company's ability to push down costs.
- However, the company still reported a net loss due to several additional expenditures recorded during the quarter, including restructuring charges, asset impairment charges, CEO search costs as well as some other expenses.
What management had to say
CEO Steven Pickett commented on the company's results by saying that,
The offshore drilling market continues to go from bad to worse, which is pulling down results sectorwide. Leading offshore driller Transocean (NYSE: RIG), for example, recently idled an additional six rigs, and has now idled 28 rigs or nearly half its 60-unit fleet. Further, since the downturn began, Transocean has retired or recycled 26 more rigs. With demand still muted, additional rigs are likely to be idled or retired before the year is over, which would put even more pressure on RigNet's results.
The near-term outlook for the offshore sector is not all that great. While oil prices have rebounded off their lows, "the recent pullback in oil prices could hinder the likelihood of any meaningful market recovery over the next year" according to comments by Transocean CEO Jeremy Thigpen on the company's second-quarter conference call. That said, he noted that "we are becoming more hopeful that we could begin to see an increase in both interest and activity as we move through 2017 and into 2018." If that outlook turns out to be true, it would suggest that RigNet's results could start to turn around sometime next year.
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Matt DiLallo owns shares of RigNet. The Motley Fool recommends RigNet. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.