RigNet Inc
Q3 2020 Earnings Call Transcript

Published: 8 Nov 2020

[Operator:]

Good day, and welcome to the RigNet's Third Quarter 2020 Earnings Conference Call. All participants are in a listen-only mode. [Operator Instructions] I would now like to turn the conference over to Lee Ahlstrom, Senior Vice President and Chief Financial Officer. Please go ahead.

[Lee Ahlstrom:]

Thank you, Andrew. And good morning and welcome to RigNet's third quarter 2020 earnings call. A copy of our earnings press release with supporting schedules, including schedules, which reconcile the non-GAAP metrics we'll discuss today to GAAP metrics, is posted to our website, www.rig.net, under our Investor Relations page. Also, we have posted a new presentation to our Investor Relations page under Presentations, and we will be referring to certain slides in the presentation today, so I urge you to download the deck and follow along. Before we get started, I'd like to make you aware that we will be making forward-looking statements today. Any statements that are not historical facts, including statements related, but not limited to, market expectations and future plans and aspirations are forward-looking statements that involve certain risks, uncertainties and assumptions. These include, but are not limited to the risks associated with the general nature of the oil and gas industry, customer and other third-party interactions, our strategy, the impact of COVID-19 on our business, the timing of certain revenue, PPP loan forgiveness and other factors detailed in the Risk Factors section of RigNet's most recent annual report on Form 10-K and in our other filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those indicated. RigNet disclaims any duty to update the information presented on this call. And now, I'd like to turn the call over to Steve Pickett, RigNet's Chief Executive Officer and President. Steve?

[Steve Pickett:]

Thank you, Lee. Good morning everyone, and thank you for joining us on today's call. On the phone with me today is Lee Ahlstrom, as you heard, our CFO, as well as Errol Olivier, our Chief Operating Officer. Yesterday after the market close, RigNet reported a net loss for the third quarter of $5.5 million or $0.25 per share, based on revenues of $48.7 million. Adjusted EBITDA, a non-GAAP measure we defined in our press release, in one of our key performance metrics was $7.5 million. Both measures were down from second quarter 2020 as a direct result of the ongoing negative effects on the global economy from COVID-19 and the associated impacts on the energy industry in particular. Despite these declines, the RigNet's team delivered some important new wins in the quarter that will drive revenue growth as we enter 2021. We're very pleased to announce that we secured a multi-year contract to deliver managed communications services with a premier offshore drilling contractor that we expect will begin adding revenue early in the second quarter of 2021. This was a several months long competitive bid, where we were able to win the business away from the longtime incumbent managed communication services provider. The customer is also a global user of Intelie, our AI-backed machine-learning platform. In addition to our global reach and the service excellence we are well known for, we believe one of the key factors driving their ultimate decision to award us this important responsibility to deliver their critical communications offshore was the expanded portfolio of value added services, including Intelie; we have developed over the last few years. Because of our differentiated offerings, we were able to engage this customer in in-depth conversations about their vision for the future, from protecting assets from cyber security threats to enhancing operational safety and creating value through automation and demonstrated that RigNet can be a trusted partner in helping them realize their vision. This is how we've been working to position RigNet for the last several years and we're seeing our strategy to move up the stack and bundle of our services really begin to pay off, as is evidenced by this important win. In our press release yesterday, we also disclosed another significant win in our core MCS business with one of the largest owners and operators of floating, production, storage and off-take vessels, also referred to as FPSOs. This customer currently has seven FPSOs operating in Brazil, with an expectation to further increase that number in early 2022. We've been providing the currently operating vessels with a relatively light service package up until now, but through this contract win, we're moving to provide a complete suite of fully managed communication services, including equipment maintenance, satellite capacity, landing and terrestrial backhaul, and network monitoring. With this more robust communication service expansion underway, we're well-positioned to further grow our relationship with this customer who's already progressing down the path of digital transformation. We expect this win will add substantial monthly revenue, recurring revenue starting in early 2021. As most of you know, we've worked hard to expand our business beyond the traditional drilling or rig market where RigNet got its start. Today, we've expanded our communication service business into the less volatile midstream market, and have gained meaningful MCS share in the production market. We've also taken our apps and IoT services, specifically Intelie and our cyber security solutions, in the vertical markets outside of energy. In terms of the market share growth, we have driven in the oil and gas production market. I'd like to take a little time and talk more about those successes and our strategy to push into the FPSO market for managed communications services. I'll refer to some of the slides in the presentation material Lee mentioned, to give you a flavor of how significant our MCS penetration has been in this asset class since we embarked on this mission to further diversify the revenue stream beyond the drone market. While we don't disclose specific ARPUs on any site types we serve for competitive reasons, FPSO's are highly complex, long light vessels that tend to deliver ARPUs that are among the highest in our portfolio, because they require significant amounts of bandwidth, typically the range of 10 to 20 megabits per second for both download and upload. In the presentation, if you take a look at Slide 11, you'll see a map of current and expected future FPSOs that RigNet is, or expects to be serving. We are present and active in the biggest markets for these vessels, which include Brazil, West Africa, and the North Sea. Generally, FPSOs are used in deep and ultra-deep water environments, where there is little or no infrastructure to get oil or gas back to shore for processing. That's one of the reasons why there were very few in North America where that type of infrastructure is in place. On the right side slide, you'll see our market share. With 33 sites today, including the ones contained in the contract win I just mentioned and another ten to be expected to come online for us, RigNet has about 23% of the current operating FPSO market. Considering we began to target this market only a few years ago, we've grown quickly and look to continue that growth. As you turn to Slide 12, there's good reason to be optimistic about our ability to add to our production-based revenue stream. 81 FPSOs are expected to be installed over the next five years. We already have 10 of these included in our market share calculations, and seven of these new vessels are expected to begin contributing revenue for us before the end of Q1 2021, as shown on slide 13. We believe this multi-year growth in the use of FPSOs can add nicely to our overall MCS growth rate. Moving to Slide 14, FPSOs have been and continue to be an important part of our system integration, or SI business. In the last 10 years, we've designed the communication systems for 37 different FPSOs, and we currently have seven bids outstanding for new vessels and are about to submit an eight. One of the trends we're seeing today is operators choosing to repeat designs for holes and critical systems like communications. So we're able to be very effective when we respond to tenders, as we're often able to leverage historical knowledge of this market and previous engineering work that has been done to design and build out networks on these assets. Finally, these FPSOs represent a great opportunity for us to introduce Intelie's AI-backed machine-learning into the production market. On Slide 15, you'll see some of the visualization screens that we're using at a couple of FPSOs that help a customer monitor critical production and safety systems, providing them real-time feedback. And because Intelie is optimized to work in even harsh satellite network environments, where there's more latency and smaller data speeds than customers would have on shore, it's a great fit for any customer who wants to take advantage of the power of AI-backed machine learning. FPSOs are yet another market with a flywheel effect, and that I've mentioned so often, is relevant. By delivering specialized bandwidth-intensive applications for FPSOs, we drive demand for delivery of more highly reliable network capacity. This is another example of one RigNet's business line creating opportunities for other RigNet's solutions that are part of the vertically integrated technology bundle that we have built, and it's working for us. As we look ahead, we continue to remain excited about the business and the market momentum we have, in spite of the current macro challenges. One of the things that typically happens in this industry is that when oil and gas companies reduce capital spending, as they have in 2020, sooner or later activity levels begin to rebound. We obviously can't predict when this will happen or whether it will look we or you, but our activity level with customers remained high. Last quarter, we noted we had responded to about 140 MCS in Apps and IoT opportunities. This quarter, that number was over 150, excluding Intelie, where we continue to move the ball forward with some high profile POVs and tenders, albeit slowly in this environment. Let me also make note that delivery of proposals does not always correlate to revenue in the immediate months that follow, as these are mostly in preparation for projects on the horizon. But they are great leading indicators that eventually the budgets for these projects will be opened and will create even more revenue opportunities for RigNet. At SI, we delivered 16 new bids and quotes to customers during the quarter, along with 57 clarifications on outstanding bids, and we already received 19 inquiries in October. I know some of you are looking at the SI backlog and have some concerns, but we've already added $2 million to the SI backlog in October and there's a significant amount of potential work in the pipeline waiting for customers to issue awards. We believe we'll begin to see that in the first half of 2021. In fact, a recent article in Upstream Online states that there are 72 final investment decisions from EPCs that are expected to be reached in 2021 with an aggregate value of $44 billion to $45 billion, up from an expected level of $17 billion in 2020. Of course, the communications parts of these projects are a fraction of the total amount, but they still represent significant opportunity and the overall project growth rate should correlate with the communication systems market we serve through our SI business. To give you an idea of the magnitude of the pipeline, we have over $100 million of contract value for projects we're bidding on in Qatar alone. And in terms of the total RigNet pipeline, we're also pursuing a number of opportunities in the government sector, both domestically and internationally, that include MCS, apps, and cybersecurity projects, along with many opportunities in our core oil and gas markets. Our team has continued to do yeoman's work in tightly managing operating costs and back office costs while maintaining capital spending discipline. All the focus on ensuring the balance sheet remains healthy. At September 30, our leverage ratio is 2.97, well below our 3.25 covenant. That covenant steps down to 3.0 at year-end, and we expect to remain in compliance. In spite of challenges in the energy market, and reiterating that we don't provide formal guidance, I can tell you that the important wins we've recently announced and that I've talked about today, combined with our opportunity pipeline, have given us confidence that our revenue and adjusted EBITDA performance in 2021 will be above what we expect to deliver for full year 2020. Before I hand it over to Lee, I want to thank the global RigNet team for everything you're doing to drive results and customer satisfaction in our business. You've adapted remarkably well to remote work environments, continued to deliver service excellence to our customers, have come up with creative solutions for things like virtual factory acceptance tests and software applications for machine learning. And our team has worked almost a million hours this year with no recordable or lost time incidents. We're very proud of and thankful for all of you. With that, let me ask Lee to make some comments on the numbers. Lee?

[Lee Ahlstrom:]

Thanks, Steve. And I hope our listeners are all staying safe and healthy during these difficult times. Let me start with a recap of third quarter results at a high level. I'll provide some additional details at the segment level. And then, I'll conclude with some comments on the balance sheet and liquidity. Some of the figures are available on Slide six of the Investor deck. And to keep things simpler this time and not throw out too many comparisons at you today, I'm going to focus on sequential comparisons to the second quarter of 2020. But again, you can see some of the year-on-year comparisons in the press release and investor deck. Consolidated quarterly revenue for the third quarter was $48.7 million, a decrease of 9% from $53.4 million in the second quarter of 2020. The revenue decline was across all segments as we saw a reduction in site count and MCS, a decrease in SI as a result of timing of projects, and a decrease from lower bandwidth usage in IoT in the absent IoT segment. Net loss attributable to common stockholders in the third quarter of 2020 was approximately $5.5 million or $0.25 per share, including the non-cash impairment of certain intangible assets. I'll touch on that in a few minutes. Excluding this impairment charge, results in the third quarter 2020 were a loss of $1.7 million or $0.08 per share. This compares to a net loss of $4.3 million, or $0.21 per share in the second quarter of 2020. Let's move on to the segments. Managed communication services revenue was $31.9 million to the quarter, compared to $34.1 million in the prior quarter. This 6.4 decrease from the second quarter 2020 was driven by lower site count, and delays in these sites coming online. Segment gross margin in Q3 2020 was up more than 600 basis points from 32.7% in the second quarter to 38.9%, as we began to really benefit from the good work our engineering and procurement teams have been doing to help reduce some of our network costs. Given the current environment, it shouldn't be much of a surprise that our MCS site count for the third quarter of 2020 was down a bit compared to the previous quarter. At [indiscernible] on September 30, we were lower by 39 compared to the second quarter. 18 of those sites were offshore drilling rigs and of those, 10 were jack-ups and with customers in Mexico, where drilling activity has generally been pretty anemic. The good news is that we don't believe we've lost any material customers and may get some sites back as activity begins to pick up again. Offshore production sites actually increased by 16 comparatively quarter-over-quarter. And of those sites, 14 were in the US Gulf of Mexico, where we had seen that decline last quarter when oil prices dropped and storage was essentially full. Finally, other sites decreased in net 45, which was mostly a combination of US and international land activity. These are relatively low ARPU sites for us, and don't have a significant impact on overall revenues. You can see this on slide nine of the investor deck. Finally, looking at Slide 10 of the deck, we continue to enjoy a significant market share among jack-ups and an increasing share with floaters, which we expect to expand as new sites come online. Apps and IoT revenue was $8.4 million for the quarter, down 5% compared to $8.8 million in the prior quarter. I'll break it down in a little bit more detail. In IoT revenue on bandwidth usage was down slightly compared to Q2 2020. We also saw some lower equipment sales in the third quarter compared to the second in IoT. In apps, our apps revenue decreased slightly quarter-over-quarter based on reduced activity. However, apps revenue increased year-on-year even in this challenging environment, as Intelie ramped up across a number of customers. Specifically Intelie's Q3 2020 revenue was up an impressive 20% relative to Q3 2019. And for the first time, apps had the lion's share of the segment revenue as it took 52% of the split in Q3 2010, compared to 48% in IoT. We continue to project that this segment will be increasingly levered towards apps in the future. Systems Integration revenue for the quarter was $8.4 million, down 19.5% from $10.5 million in Q2 2020. As we always remind investors, SI revenues are tied to our progress on projects, and so revenue and costs are sometimes uneven. In Q3, as in Q2, we made some good progress on our projects as site work and remote factory acceptance testing continued despite more strict COVID-19 protocols being in place. Backlog in the business declined to $12.4 million as of September 30, from $15.9 million in the prior quarter. But as Steve noted, we believe that once customers begin moving ahead with project awards, we will see a healthy replenishment of the backlog. Gross margin for SI decreased to 15.8% from 28.4% in the prior quarter, impacted by timing and productivity on certain projects compared to the prior quarter. As I mentioned earlier, we recognized the non-cash impairment on certain intangible assets of $3.8 million in the third quarter, as a result of the carrying value of those assets being in excess of the fair value as a result of market conditions. SG&A expenses were $11.6 million in Q3 2020, down slightly compared to $11.7 million in Q2 2020. We're continuing to hold the line on costs with everyone in the organization contributing to our ongoing strong performance. We're also keeping capital expenditures to a minimum. For the three months ended September 30, CapEx totaled $2.0 million, compared to $3.1 million in Q2 2020. As of September 30, accrued capital expenditures were about $600,000 compared to $700,000, as of June 30. After accounting for these accruals, capital expenditures on a cash basis were $2.1 million for Q3 2020. Third quarter CapEx was substantially composed of success based commitments and capitalized labor. On Slide 26 of the investor deck, you can see the breakdown of year-to-date capital spending, which includes $6.3 million of success base spend, $2.3 million of capitalized labor and internal use expenditures, and about $100,000 of maintenance. We will see CapEx tick up a bit in the fourth quarter, as we begin to purchase equipment related to the two big wins we discussed. During the quarter, we generated about $1.3 million of free cash flow after making our principal and interest payments. This is down about $600,000 from $1.9 million in the second quarter. As a reminder, we calculate this by starting with adjusted EBITDA and subtracting cash CapEx, cash taxes, other cash add backs and principal and interest. Looking at unlevered cash flows, or adjusted EBITDA, less CapEx, we decreased to $5.5 million in the third quarter, down from $6.6 million in the second quarter of 2020, with lower adjusted EBITDA offsetting lower CapEx. With respect to the balance sheet, you can see some of the details on page 27. As of September 30, cash was $16.9 million, up $1.3 million from June 30. Our outstanding debt was $109 million, including both current and long term, down about $6 million from June 30. At quarter end, our consolidated leverage ratio, as defined in the credit facility, was 2.97 versus our cap of 3.25. And as a reminder, that's on a gross debt basis with the terms defined in the credit agreement. Also, as we show on Slide 27, our long term debt includes the $6.3 million Paycheck Protection Plan the loan proceeds, which we have used for payroll costs as defined under the program. In September, we obtained a waiver from our Bank to exclude this amount from our covenant calculations through the sooner of forgiveness or 331-21 [ph]. Unfortunately, the process for actually filing forgiveness has continued to extend as a result of ongoing tweaks to the program being made by the SBA. So we're waiting to file our forgiveness application, and we'll do that as soon as possible. And while we cannot offer guarantees, we do anticipate obtaining full forgiveness for the maximum amount, removing this amount from our long term debt. If the process continues to push to the right, we expect that we will be able to extend that waiver. And with that, Andrew, I think we are ready to open it up for some questions.

[Operator:]

[Operator Instructions] First question comes from Allen Klee of National Securities. Please go ahead.

[Allen Klee:]

Hello, starting with your managed communication services. The new FPSO contract that you announced in October, can you -- I just want to confirm this is not the existing information that you've had on your previous presentation related to Petrobras, that this is something in addition to that? And it seems like the intensity of use for the FPSOs make -- the amount you get paid for them is the most attractive. I just wanted to confirm that also. Thank you.

[Steve Pickett:]

Allen, it's Steve. Yes, this is not Petrobras. It is a different customer, where we've had the additional win and the ARPUs and FPSOs tend to be the best and are the best in our portfolio. So we're very pleased with what we've been able to do to grow share in that market. And we will continue to focus intensely on that market, with a view that market is an ideal market for a number of the apps in our portfolio, as well.

[Allen Klee:]

If you look at the managed communication segment, you were able to grow your gross margin, what your gross margins were -- percentage sequentially, despite a lower site count and revenue. Can you explain, and I'm assuming some of that is what you talked about last quarter of lower bandwidth costs or network costs? But could you maybe go into what's been behind the improve margin and is that maybe sustainable?

[Steve Pickett:]

Yes, maybe I'll start and Lee or Errol, please supplement. It's largely due, indeed, to what our teams have done, particularly our engineering procurement teams, to work to get costs out of the network side of the business. And very pleased how the team has executed related to cost of goods sold within managed communication services.

[Lee Ahlstrom:]

Yes, Alan, this is Lee, good morning. The procurement team, the engineering folks are spending a significant amount of time examining all the circuits in the system, looking at all of the bandwidth contracts, in dialogue with our bandwidth providers. And, they've had very good success in turning off some circuits that were no longer active, but also in getting concessions from our bandwidth providers, working with us in a spirit of partnership, to help turn down some of the costs for us when sites go dark.

[Errol Olivier:]

This is Errol, I'll add to that also, not only are we doing a great job of managing costs and turning down unnecessary circuits and readjusting our bandwidth needs, but we're also focusing on the lower hanging fruit, which are those revenue opportunities and just require us to turn up more bandwidth instead of having to go out and install more equipment. So, even while we may see some revenue decline, we're also picking up revenue on jobs that are more profitable, because it's a quick turnaround.

[Allen Klee:]

Can you [ph] talk a little bit more about customers who are actually looking for more bandwidth in this environment?

[Errol Olivier:]

Yes, great. I mean, that's something I really like talking about. We're in an industry where this whole thing about digital transformation is real. For years, it's been that the oil and gas industry doesn't like change until changes perfected, but especially with the price of oil, and the fact that we have quarantines and pandemics and all these restrictions for travel, more and more of these companies are needing to be able to do things remotely, and to have more access. So they're looking at some of the applications that we're delivering, let's take, for instance, ABI, and ABI allows them to see what's going on on the remote site by one guy walking around with a helmet camera or phone camera or a CCTV, and that information is transported back. So that's driving additional requirements of bandwidth. But when you look at the big picture here, it's really everybody wants to be able to remotely operate those facilities in what we call the digital twin, where basically they're replicating everything that's happening at the remote facility right there at their desk. It's a big, big driver of the revenue opportunities for us. And it's also what's differentiating us from our competitors. We are probably the only satellite services company I know of that can deliver the kinds of applications that are not only helping our customers be more efficient at operations, but any additional costs that they have because of digitalization or, let's say, increased bandwidth, is offset by the savings that we're able to deliver them with the applications we're bringing into them, for instance, Intelie, which helps them see problems are coming and being able to stop the problem from happening. So, we're enjoying -- even in a downturn, we're enjoying the opportunity to bring more efficient tools and more cost savings to our customers, even though it cost them a little bit more for bandwidth. We've got the value proposition that's really been selling.

[Allen Klee:]

That's very helpful, thank you. If we talk about the Gulf of Mexico network you have and the T-Mobile partnership, do you have any sense of when T-Mobile will get paid back for their capital investment and when you'll be able to start generating revenue from this?

[Steve Pickett:]

The short answer is no, we're obviously working closely with T-Mobile, that's an important relationship for us. But, given what's happened with the pandemic and given what's happened in terms of the cruise line industry, that does move through that area where the network resides, I think there's some uncertainty around what the roaming traffic is going to be and when it turns back on. And for that reason, at this point, we have not put any incremental revenue into our forward-looking models, until there's more clarity around that.

[Errol Olivier:]

Yes, and that's exactly -- I think, what Lee was going to say, Steve, but also to back that up. One thing is the T-Mobile network offshore Gulf of Mexico is working well, and that the customers that are using it are enjoying it. I think that once we see activity picking up in the Gulf of Mexico, once we see the cruise ships going back out, that's where a lot of the roaming opportunities come from. But I guess, the short answer, like Steve said, is no, we can't give you a timing on that. But we do know that that time is going to come. It's just nobody knows the matter of when.

[Lee Ahlstrom:]

And of course, Allen, we do generate some revenue now from the monthly service fee that we get from T-Mobile for all of the active sites that we have out there, where we're continuing to monitor and do maintenance work for them.

[Allen Klee:]

Got it. For apps and IoT, any update on traction from some of the big things that you've announced, like the Microsoft partnership, CACI, working with BP, Petrobras or any other ones?

[Steve Pickett:]

Nothing specific to announce here on the call today, Allen but, I'd say, good progress with all of those partners and customers.

[Allen Klee:]

Okay. And then for apps in IoT was mentioned that IoT, there was lower bandwidth usage. My understanding is you mostly you get revenue from monitoring pipeline. So could you maybe explain what's going on with that?

[Steve Pickett:]

Yes, there are two ways that we generate revenue there. One is on sites where there's a dedicated pipe that provides continuous communication. In some situations, customers pay by the megabyte. And so, the amount of bandwidth that was used during the quarter was a little bit less than has been used in previous quarters for those customers who pay by the drink, if you will. And as we mentioned also, hardware sales, which does vary from quarter-to-quarter was down a bit in the quarter, as well.

[Allen Klee:]

Okay. And then, in the SI segment, it sounded like -- I thought I heard you say that you added $2 million to backlog in October and you gave some examples of how it all could pick up. So is it a base case scenario that the backlog should generally be -- that we won't see it declining going forward? Or maybe another way to think about it, is this a segment that sequentially you think whatever you end up doing in fourth quarter that's a base level? And then it can either stabilize or improve from that level in 2021?

[Lee Ahlstrom:]

Allen, I certainly -- again, without giving you guidance, per se, I certainly think that as we talked about the backlog potential increase in 2021, as these projects start to get awarded, is pretty significant. And with a couple of project awards, we could see it shoot right back up. And the fact that we're continuing to respond to requests for clarification, as well as entertain new bids, is what gives us confidence that this work is coming. It's a matter of timing. And so, in the meantime, we are working with existing customers on existing projects, adding change orders, adding smaller jobs, which may not hit the radar of some of these big multibillion dollar projects, and yet are still positive contributors for us. So, I can't tell you whether I think the backlog is going to be down at the end of the year or up. But I think the trajectory of the backlog in 2021 will reverse.

[Allen Klee:]

That's great. And then, on your cash flow statement, it looks like your operating cash flow in the quarter was close to $12 million with CapEx of just around $2 million, so you generate a good free cash flow. I know you use a different definition, and it looked like the components, deferred revenue and pay downs of accounts receivable had pretty good impact. Could you maybe talk about have you think about those two things and working capital, how that will have an impact maybe in the near term?

[Lee Ahlstrom:]

Sure, Allen, I think you know that we have had a pretty strong effort around collections. And that has yielded some very good results for us comparing what we calculate in terms of our day sales outstanding, coming down throughout the year. And of course, we tend to look at that really, at least internally, on the basis of our recurring revenue customers as opposed to our project base customers, where you can send a large number of invoices, for example, in June and it looks like your AR has gone up quite a bit, but they pay relatively quickly, so they're one time slugs. With respect to using the free cash flow, we've obviously been paying down quite a bit of the debt, working to continue to shore up the balance sheet and make that stronger, put ourselves in a better position there, and I expect that's what we'll continue to be focused on as we move ahead.

[Allen Klee:]

Thank you. You said a lot of good things on this call. And I got to say your presentation, that the detail you have is tremendous. So it's appreciated. One statement you said, the thing that stood out the most to me, was that you believe that revenue and adjusted EBITDA in 2021 would be above what you deliver in 2020. I missed most things, but I did catch that. And that's significantly higher than where my estimates are. And so, is the way to think of that -- I mean, it sounds like in MCS you've got these big wins that are going to be your gaining share and that's going to help their apps as it is just going to continue to be a growth driver. And the big surprise to me is that SI will start the opportunity there. Is that the way to think about it? Or should -- is there anything you wanted to add to that?

[Steve Pickett:]

I think it's a good summary, Allen.

[Lee Ahlstrom:]

I agree. I think when we talk about exceed making [ph] in SI, and I know that may be one of the areas where you have had some lower expectations in thinking about 2021. When you look at the hundred million dollars of projects that we're fitting in the Middle East alone in just one country, again, you start getting some of those awards, and the team is ready to spin up and get that work done and start bringing that revenue in. We feel all segments are going to be up compared to where they will finish the year. And of course, we're going to continue to maintain our focus on cost.

[Allen Klee:]

That's great. Okay, thank you so much. That's it with my questions. Great job.

[Operator:]

[Operator Instructions] The next question comes from Brian [ph] of Emerson Equity, please go ahead.

[Unidentified Analyst:]

Great quarter; really great blocking and tackling. Appreciate the forward guidance, as well. You had a pretty good nice uptick in production line item in MCS. And I was just wondering if you added any more FPSOs out of the Petrobras contract in that line mix that helped boost it? Or if it was primarily just the -- as you mentioned, the oil storage becoming available and production flowing back again in the Gulf?

[Lee Ahlstrom:]

It was really the latter; you can see our schedule for at least just the Petrobras. FPSO is on Slide 13 of the deck, those have been sliding a little bit to the right. As we've, I guess it's not fair to say we've struggled with, but I think Petrobras in Brazil has had issues with the COVID restrictions around shipyards and installations and everything else. So, those are yet to come. And of course, the other win, with the other customer that Steve talked about, with the FPSOs where we're significantly turning up revenue, that is yet to come. But the site count increase here really was around production platforms.

[Unidentified Analyst:]

That's great. So the new contract is seven with the potential for 12 floaters. Is that correct?

[Lee Ahlstrom:]

You're talking about the FPSOs, they have seven now. They are expecting to grow. And as they grow, we should be adding those into the mix. I don't know, Errol, if we have a specific number that they're going to -- or that we can give out?

[Errol Olivier:]

Lee, I don't have that information handy. I'm sorry.

[Unidentified Analyst:]

Okay. Just trying to fine tune the production line item again. So you weren't earning much on the seven, it was mainly tests. So you could add the seven, and then roughly nine or 10 FPSOs from Petrobras on a forward basis. Plus any other new ones that you might, as you're trying to add market share, is that the way to look at it?

[Lee Ahlstrom:]

Yes, so the way to look at it is, on slide 11, we have our market share for FPSOs there, that includes the current FPSO that we're serving, plus the additional ones that we expect to come on with both Petrobras and other customers. Now remember, we have revenue being generated on the seven that we mentioned. So they're already in our site count. But new Petrobras FPSOs, as they come on, new FPSOs with this other customer, those would be incremental in the reported sight count at the end of a particular quarter when they come on.

[Unidentified Analyst:]

Okay, that's helpful. So when I jumped to offshore, you held the line extremely well, except for the one off, but more importantly, you have 26 floaters coming online it looks like, with the potential for 41 with that fleet right-wide [ph] contract. And then, if I look at increased utilization on the FPSOs, the 10, it's almost as though you have around 40 assets coming online and a base of 172. Does that give you the comfort that you're going to grow essentially, substantially all other things being equal next year?

[Steve Pickett:]

I didn't put the adjective on it. But yes, that that is indeed an important part of what gives us confidence that will be above 2020 in terms of financial results in 2021.

[Unidentified Analyst:]

When I add those on, as well, it looks like that's the highest potential site count that you've had since 2015.

[Steve Pickett:]

Yes, we're really, really pleased with how the team is performing. And as a result, the market's demonstrating a great deal and confidence in what we're able to deliver. And I think we're truly delivering best-in-class service at this point. And given customers who are operating offshore have more and more reliance on a high quality, highly reliable network, I think that is a dynamic that's serving us well.

[Unidentified Analyst:]

That's awesome. Jumping on to apps and IoT, great quarter, at you mentioned 150 RFPs, across MCS and apps and IoT, is that the new number? Is that up from the 130, or 140 from Q1?

[Steve Pickett:]

Yes, Brian. Last quarter it was 140. I'm sorry, I should say it differently, second quarter was 140, third quarter was 150.

[Unidentified Analyst:]

So, these two contracts with the FPSOs and fleetwide contract on floaters, that would be two pretty big wins -- seems like it might be somewhat on the higher end, is that around the mid-range of the opportunities within the 150, those type of deals?

[Steve Pickett:]

No, I would characterize those as higher-end with larger opportunities relative to the average.

[Unidentified Analyst:]

But then, when I look at your 26 wins in software today, on $13 million reds, you're averaging about a half a million a win. And within that, you have some paid proof of concepts, which are smaller, and now you're starting to add on some larger contracts, particularly like the BP. The BP contract, you mentioned a few quarters ago that was going to be installed during Q3. So am I looking at it right, that I could similarly use an average across 150 RFPs when I look at software. And then the sizable wins that are in MCS, typically, it seems like you're in a pretty good position in terms of potential backlog across those two key business segments.

[Steve Pickett:]

We're really pleased with the momentum that Intelie has and there are really three ways that revenue grows for Intelie. One is, we might get started with a customer in a particular part of the world in when they go global with the platform, revenue grows as they expand their footprint in terms of use. Another growth driver can be the development of new applications. So they might select the platform that's very easy to add to for one or two particular -- to solve one or two particular problems that they're trying to solve. But then, they can layer on other new applications to solve other problems. And that drives revenue growth for us as well. So there are two ways to grow revenue with existing customers. And then of course, the third way is to secure more customers. And we've been very pleased with the pace at which we've been signing up new logos in that business.

[Unidentified Analyst:]

That's great. And then, jumping on to SI, that's a pretty sizable opportunities set that you're addressing and when I look at the articles you mentioned, I also found as well a $45 billion offshore EPC market set for orders rebound next year. Within that, plus $100 million and request for proposals gives you pretty good comfort in SI next year?

[Steve Pickett:]

Yes, it's encouraging to see the expectation that the market is going to expand so significantly, it does remind me that the energy market -- that is our primary market, not our only market, but our primary market, does tend to be cyclical, and people tend to forget about that, when at the low end of the cycle, and [indiscernible] at the high end of the cycle.

[Errol Olivier:]

I was going to say to add to that, I think Steve mentioned this in his opening comments, a lot of these systems integration jobs are falling right into our sweet spot. And what I mean by that is, these are communication systems that are going on facilities and vessels and in places where we've done this work before, and we're able to use the already engineered engineering, and we're able to use experience from the past to be more competitive in our bids. And not only that, but we've been successful on a number of those already. So we have the track record and we have the information and knowledge to be able to bid these safely with minimal amount of risk and win. So that's given us a bit of confidence that -- we're bidding on a lot of things that we've already done a number of times before.

[Unidentified Analyst:]

That's awesome. When you look at it in the past, in Q1 or Q2, you gave 34 RFPs out in SI, how is that number changed? Where does it sit today, if you can give that? Obviously seems like it would have gone up with the hundred million dollar addressable RFPs that you have out, but I'm just curious, do you have a number?

[Lee Ahlstrom:]

I don't have that offhand when we talked about the 57 clarifications and 19 new tenders or new inquiries already in October. So, certainly the activity level is robust. And yes, those projects that we mentioned adding up to that hundred million dollars are -- they're each fairly substantial in terms of revenue opportunity for us. And that's integration alone, the $100 million [ph] figure, correct.

[Errol Olivier:]

That's exactly right. And the pipeline is robust, as we said also earlier, just because you putting out proposals today doesn't mean you get purchase orders next month. These are projects that are playing months and months in advance and they're not awarded immediately after you put your proposals together. But the fact that it's that strong and the pipeline's that full of -- still inquiries coming in, that's a great leading indicator that eventually the gates are going to open. And the money is going to start being released after you get into the next year and the budgets are set and some of the chaos of COVID and the whole market start to settle down. These projects have to happen; it's just a matter of when.

[Unidentified Analyst:]

Quick question for Steve, as you deploy the expanded deal with BP in Houston and Aberdeen, can you talk a bit about the revenue driver for that kick in activity levels as [indiscernible] takes over and potential viral effect with usage driving revenue on that line segment?

[Steve Pickett:]

Brian [ph], of course, we haven't announced the specific details about that contract as it relates to revenue. But indeed, it is a global deployment. And we've started that global deployment. And it is also on the classic Intelie platform that is a platform that you can very easily add new applications to. And so, we're already engaged in conversations about other applications that were part of the first award that could be added to the platform, as well. So there's great relationship there and looking forward to doing even more over time to help them with their digital transformation effects.

[Unidentified Analyst:]

Is it safe to say that couldn't be incremental going forward, that we weren't fully deployed in Q3?

[Steve Pickett:]

I think there are opportunities to continue to grow with BP.

[Unidentified Analyst:]

Got it. I appreciate it. I think that's all I have, a great quarter and look forward to speaking to you in the future.

[Operator:]

This concludes our question and answer session. I would like to turn the conference back over to Lee Ahlstrom for any closing remarks.

[Lee Ahlstrom:]

Well, thank you all for joining us today. We appreciate it; appreciate the good questions and the opportunity for us to tell our story. We think it's an exciting one. We think there's a lot of upside to it and we will be back to report fourth quarter earnings in the March timeframe. Steve and I and Errol, we're available for follow ups, by email or by voice if you have any further questions and thank you again.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.