RigNet Inc
Q3 2014 Earnings Call Transcript

Published: 5 Nov 2014

[Operator:]

Good day, ladies and gentlemen, and welcome to the RigNet Third Quarter 2014 Earnings Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer-session and instructions will be given at that time. (Operator Instructions) As a reminder, today's program is being recorded. I would now like to introduce your host for today's program, Marty Jimmerson, Chief Financial Officer. Please go ahead.

[Marty Jimmerson:]

Thank you, Jonathan. Good morning, and welcome to all of our participants around the world to our third quarter 2014 earnings call. With me today is Mark Slaughter, CEO and President. Yesterday, after the markets closed, we issued a press release regarding our third quarter results and filed an 8-K with the SEC. Those documents are now available on our website at www. rig.net. Mark will begin today's call with a business review regarding our quarterly performance, and then I will follow up with some financial details. Mark and I will then open up the call for questions. Before we begin, let me remind everyone that our call will contain forward-looking statements. Except for historical facts, all statements that address our outlook for 2014 and beyond, as well as activities, events or developments that we expect, estimate, believe or anticipate, may or will occur in the future are our forward-looking statements which involve substantial risks and uncertainties that could significantly affect expected results. Actual future results could differ materially from those described in such statements. You can obtain more information about these risks and other factors in our SEC filings. Now, this is my pleasure to turn the call over to Mark.

[Mark Slaughter:]

Thanks, Marty. Again, to all our participants around the globe, I want to thank you for joining our third quarter 2014 earnings call. I was pleased with our strong third quarter results, which included a trifecta of all-time quarterly records for revenue, EBITDA, and net income, as a result growth in our core managed services business and the addition of the Inmarsat Enterprise Energy business unit that we acquired early in the year. The integration of this business unit is proceeding on schedule, and customers appear delighted with our expanded capabilities that include global L-band services, microwave services in the U.S. Gulf of Mexico, and the coming Global Xpress high throughput satellite platform that Inmarsat is putting into place. We see market conditions for our service is being reasonable over the near-term and favorable over the long-term, with the increasing digitization of the oilfield allowing RigNet to be an integrated technology solutions provider across the life of the field from drilling through production. Speaking briefly through our financials, revenue in the third quarter was an all-time quarterly record of $87.8 million, including $22.7 million from the Enterprise Energy business unit acquired from Inmarsat. Organic revenue increased 14.6% compared to the third quarter of last year, but primarily by good growth in our managed services business. EBITDA was an all-time quarterly record of $20.2 million, or 23% of revenue, representing an increase of 39.7% compared to the same quarter last year. Net income was an all-time quarterly record of $5.9 million, or $0.33 per diluted share. RigNet provides to the oil and gas industry, both managed remote communication solutions and telecoms systems integration services. We provide premium managed solutions primarily to offshore and onshore drilling rigs, offshore and onshore production facilities, and energy maritime vessels. We achieved revenue growth by increasing the average revenue per site or ARPU, and by increasing the number of remote sites served. We grow ARPU by adding secondary and tertiary customers of these sites, and by selling additional value-added solutions and associated satellite bandwidth upgrades, as most of our customers are still operating at low bandwidth speeds across their remote operations, as compared to their terrestrial networks. We grow site count by targeting new and existing sites where our value proposition of highly reliable networks and superior customer service resonates well with customers. In our core offshore rig communications market, our network infrastructure is now deployed on more than a third of active and addressable rigs. But we remain optimistic that we can capture additional market share and that the number of active offshore drilling rigs will continue to grow, the real story for RigNet in serving offshore rigs is that increasing digitization of the oilfield means more revenue growth is expected to come from ARPU as opposed to site count additions. As movement towards a digital oilfield continues, RigNet delivered record quarterly revenue in offshore rig communications driven by improvement in all three leverage we hold quarter-on-quarter. Higher average revenue per rig increased market share an improvement in total rig served. Organic revenue from offshore drilling rigs also increased 28.1% compared to the prior year quarter with approximately half of the increase coming from ARPU improvement, and the remaining half from an increase in the number of rigs served. Conversely in our more nascent efforts to build presence in the adjacent oil and gas verticals at low production, energy maritime and international land drilling, our revenue growth in those asset classes over the near to medium-term will come more from site additions than ARPU growth, though the same digitization theme still ultimately applies to these step-out classes over the long-term. Organic revenue in production, energy maritime and international land drilling and other sites increased 18.1% compared to the prior year quarter. Again, we expect our revenue growth in our newer target areas to be led by site growth as we seek to establish critical mass there. Though over the longer-term, we expect ARPU to drive growth consistent with the digitization theme that applies across the entire upstream oil and gas business. I now want to mention some of the more notable customer awards in the third quarter and through the month of October that will imply into our future results. We view significant awards as those having a total contract value of $1 million or more in revenue. Representative awards include, for a major offshore driller, we were awarded multiyear managed communications contracts on eight newbuild premium jack-up rigs. For a smaller offshore driller, we have sold additional value-added services and associated bandwidth for a drillship moving to the U.S. Gulf of Mexico deepwater market. And for a smaller operators specializing in deepwater projects, we have signed multi-year contracts for managed communications on a drillship and a semisubmersible rig. For a major oilfield services company, we renewed contracts on 10 sites in the Middle East. In the UK sector of the North Sea, we signed a multi-year contract with the European operator for managed communications on a jack-up rig. In extremely remote part of our Asia-Pacific region, we signed a multi-year contract with the European operator for managed communications for a remote office. The one at the top offshore drilling customers that we have, we upgraded services and bandwidth in connection with a larger project they are leading to improve their asset productivity and efficiency across their global rig fleet. And finally, in our TSI business, we were awarded a contract for telecoms work for a sulfur recovery plant. We announced last year that ENSCO had given RigNet a 17-rig award emanating from their acquisition of Pride International and have reported progress each quarter since then. I can report that we activated two of these offshore rigs in the third quarter, bringing the total number to six rigs that have been activated thus far with three more rigs expected to be activated in the fourth quarter, and another three rigs in first quarter of 2015. One rig conversion is still pending as to timing based on operational windows. We ultimately expect to activate 13 of these 17 rigs as ENSCO has publicly announced their coalsack in two rigs and expect to sell two others. RigNet's business is substantially driven by rigs in operation, not the day rates drillers charge operators. Despite lower oil prices and overall declines in day rates that drillers are able to charge operators in today's environment, the latter being mostly due to a temporary oversupply of offshore rigs in our view. Our core business continues to see increasing demand for our value-added services offerings as evidenced by our record third quarter results. Looking forward, we also believe that global demand for offshore drilling rigs will remain solid in the near-term and favorable over the long-term. In addition, with respect to new scheduled rigs that will be delivered over the next few years, we expect higher day rates for our services due to the great data intensity of newer rig operations, which could be considered bullish for RigNet's forward results. We continue to be excited, as do our customers, with the enhanced capabilities that RigNet now offers as a result of the strategic alliance we had struck with Inmarsat. In acquiring their business unit, we picked up a talented and motivated workforce and a microwave network operating across the U.S. Gulf of Mexico shelf. We have also become a global distribution partner in oil and gas for Inmarsat's L-band mobility offerings, which provide solutions that particularly meet the needs of the oilfield services industry, but can also serve as integrated back-up solutions on offshore rigs in other remote sites. Perhaps most important, we have become a premier bar in oil and gas for Global Xpress, which is Inmarsat's next-generation satellite service, that will help meet the industry's needs for higher bandwidth solutions at the edge. Inmarsat has one of its scheduled three GX satellites in place now over the Indian Ocean region, and we are participating in testing the service. While there have been some launch delays for the other two satellites, we remain confident in Inmarsat's ability to get to the GX service in place for RigNet has used around the world. Telecom systems integration, or TSI, is a smaller and important business area for RigNet in which we serve the broad needs of the oil and gas industry around the world. RigNet TSI, which includes the Nessco systems integration business we acquired in July 2012, and Inmarsat's engineering and integrated services business we acquired in January, positions RigNet to serve not just drilling, but also production. We have assembled this business area in order to position RigNet with advantage to pull through recurring revenue opportunities into the managed services side of our business based on work on TSI projects and/or with TSI customers. The TSI business will also be assisting the offshore rig side of the business with more advanced engineering design, project management, and supply-chain skills as offshore rig installations become larger and more complex. I've mentioned this already, excuse me, but with the increasing digitization of the oilfield, our vision and strategy is to become an integrated technology solutions provider across the life of the field from drilling through production. We want to move from just enabling the digital oilfield to participating more directly in it, in direct support of our oil and gas customer base. The technology solutions notion is a broadening of our offerings within upstream oil and gas, potentially even beyond traditional remote communications to allow our customers to leverage resources through greater use of technology-centric solutions. Our vision for that RigNet of tomorrow includes bringing forth solutions that leverage our global network in exampled areas such as remote collaboration, workflow and knowledge management, subsea communications, and asset tracking and utilization. We will look for opportunities to execute against this strategy both organically and inorganically as we move forward. Our geographic footprint also continues to expand as oil and gas companies go ever deeper and ever more remote to find commercial qualities of oil and gas. When I had arrived at RigNet almost eight years ago, RigNet operated in less than 30 countries around the globe. Today, we are active in almost 50 countries with the oilfield services industry in particular pushing us to expand to their 90-plus country footprint. We see China and Russia is two promising large markets in the future, but want to establish a presence over the long-term that is consistent with our global compliance program. Central Asia is also an attractive expansion area with RigNet now having established a presence in Kazakhstan as a beachhead for that region. We have presence today in Latin America and in Africa, but do not serve all countries in those two regions that have oil and gas activity, giving us impetus to grow our presence in those regions as well. These are country by country efforts to establish complaint operations with the appropriate licensing, legal status, and boots on the ground. Our decision to enter a specific country or region is driven by our own research and/or by customer pool with entry efforts being either inorganic or organic. This expanded geographic footprint leverages our global networking capabilities opening up additional growth runways in oil and gas remote communications for our investors. In closing, I'm pleased with yet another record-setting performance in the third quarter that was delivered by our over 700 employees around the world and supported by our satellite and IP networking partners. We remain committed to addressing the digital oilfield as a mission-critical technology solutions provider, helping our oil and gas customers operate more productively, efficiently, and safely. I remain encouraged by the traction we are gaining in the business organically, and I'm looking forward to leading additional organic and inorganic moves that expand our technology solutions portfolio, enhance our capabilities, broaden our geographic footprint, and position us to serve our customers with continued distinction. With that, I'll turn the call back over to Marty for a more detailed financial review. Marty?

[Marty Jimmerson:]

Thank you, Mark. Now let me share some more detail about our third quarter 2014 financial results. During the third quarter of 2014, we reported record revenue of $87.8 million, including $22.7 million from the Enterprise Energy business unit acquired Inmarsat at the beginning of the year. Excluding the Inmarsat business, organic revenue increased $8.3 million, or 14.6% compared to the same quarter last year. The increase in organic revenue compared to the prior year quarter was primarily attributable to increases in ARPU from offshore rigs, and to increases in sites served, including those from our strategic initiatives. Looking at our quarter-on-quarter organic revenue performance, excluding Inmarsat, we were extremely pleased with our managed services business, serving offshore rigs and other energy sites, which increased by $4 million, or 7.3%. Total revenue quarter-on-quarter increased $7.2 million, or 8.9% with the incremental $3.2 million coming from TSI results from the Enterprise Energy business unit. Organic revenue from offshore rigs increased 6.4% quarter-on-quarter from both increased ARPU and rigs served. Organic revenue from other sites, including our strategic initiatives, increased 8.5% quarter-on-quarter for the same reasons. Adjusted EBITDA was a record $20.2 million, or 23.0% of revenue, an increase of $5.7 million, or 39.7% over the same quarter last year, and an increase of $1.4 million, or 7.3% quarter-on-quarter. The increase in adjusted EBITDA resulted from organic growth in our core managed service business and to a lesser extent, contributions from our recent Inmarsat acquisition. We reported total SG&A expenses of $19.4 million compared to $17.9 million in the prior quarter. SG&A increased $1.5 million quarter-on-quarter. The increase is primarily attributable to increases in head count and professional fees as we continue to strengthen our organization for growth that we expect to add in both our core business and strategic initiatives. We reported consolidated net income attributable to stockholders of $5.9 million, or $0.33 per diluted share. Net income attributable to common stockholders was $5.7 million, or $0.31 per diluted share in the prior quarter. Our effective tax rate for the third quarter was 44.5% compared to 37.4% in the prior quarter. The effective tax rate was higher primarily due to recognizing additional valuation allowances for provision in the third quarter related to excess tax benefits of non-cash compensation. Our effective tax rate for the nine months ended September 30, 2014, was 44.9%. Now turning to the balance sheet. As of September 30, our cash, including restricted cash, was $62.4 million, net working capital was $100.1 million, and our debt was $83.2 million. Our gross debt-to-EBITDA leverage stood at 1.15 times as of September 30, while our net debt leverage was 0.3 times. As of September 30, 2014, $95 million was available under our $125 million revolving facility. Capital expenditures were $10.0 million in the third quarter, including $1.3 million of expenditures related to our ERP implementation, bringing our year-to-date total for capital expenditures to $31.2 million. This compares to $9.1 million in the prior year quarter and $24.3 million for the nine months ended September2013. Majority of our capital expenditures continue to represent success-based revenue-generating capital expenditures at the edge inversely conserve as a leading indicator of future results. We announced earlier this year that the company began implementation of a new enterprise resource planning solution. During the third quarter, we substantially completed our configuration and development work. We believe we remain on track to go live in early 2015. We still project total capital expenditures of $5 million to $6 million, representing a substantial investment in our systems to standardize and strengthen the backbone of our global operations. Wrapping up, we are extremely pleased with our third quarter financial performance and operational execution. Our integration of the Inmarsat business unit continues as expected. Our core business performed in line with our expectations, and we continue to see supported market conditions that give us the confidence for the balance of 2014 and then to the early part of 2015. With that, Mark and I are happy to answer your questions. Jonathan, please open the lines for questions.

[Operator:]

(Operator Instructions) Our first question comes from the line of Ben Schuman from Drexel Hamilton. Your question please.

[Benjamin Schuman:]

Hi, good morning, guys. Thanks for taking the questions.

[Mark Slaughter:]

Yes, thanks a lot, Ben. Thanks a lot and welcome you in Drexel Hamilton to cover to RigNet.

[Benjamin Schuman:]

You’re welcome. Thanks. So Mark, some of your offshore customers are talking about potential accelerated retirement of rigs in the 30-year old to 35-year old plus range in response to this expected oversupply. Do you guys have any sense, or rule of thumb in terms of how the bandwidth usage on those older rigs compares to average fleets and, of course, the new higher spec rigs coming online? And I guess it will be interesting to hear your thoughts in terms of floaters, but also jack-ups if possible?

[Mark Slaughter:]

Yes, in general, we take that trade every day. We would obviously love to see old rigs continue working, but we have to take the trade for an old rig retiring in a new premium jack-up or seventh-generation floater coming online. We take that trade every day. The data intensity because of the higher specifications in the more remote and harsh environments in which they operate really plays well to our business model. So the ARPU that we would expect to capture from the drillers, operators, and service companies on these latest generation rigs is quite attractive.

[Benjamin Schuman:]

Okay, great. And then, Marty, maybe could you give us some color on working capital and cash flow, or how that should maybe trend through the end of the year. I see that the DSOs came down a bit, but still remained at pretty high level?

[Marty Jimmerson:]

So for the – through the end of the year, we don’t anticipate any major changes, I think you can assume CapEx will continue in the same range. Working capital does get impacted somewhat by our TSI business in terms of the timing of the billing on the projects. But we wouldn’t expect any material or significant changes between now and year-end.

[Benjamin Schuman:]

All right, great. Thanks, guys.

[Mark Slaughter:]

All right. Thanks, Ben.

[Marty Jimmerson:]

Thanks, Ben.

[Operator:]

Thank you. Our next question comes from the line of Brandon Dobell from William Blair. Your question please.

[Brandon Dobell:]

Thanks. Good morning, guys.

[Mark Slaughter:]

Hey, good morning, Brandon.

[Brandon Dobell:]

Maybe a little kind of color if that’s the right word on the gross versus net adds, especially on the offshore sites, but just kind of across the different buckets of sites you guys serve. I guess, I'm trying to get a little bit of idea of – maybe a churn impact from rigs that are being retired either stack or just taken out and warm stack cannot being marketed, as maybe an indicator for, how much churn you guys are seeing within your customer base, or is it minimal churn and the net adds that we saw, looked an awful lot like the gross adds that you had in the quarter for offshore?

[Mark Slaughter:]

Yes, as I pointed out in the prepared commentary, yes, we saw three positive things with offshore rigs in the quarter, increased market share, increased number of rigs served, and increased ARPU. And, again, our theme around digitization is that for offshore rigs in particular, we're going to – you’ll continue to see increasing demand for bandwidth at the – associated purposes with it. So we think that continues and that was supported in the quarter. With respect to the quarter on count, we did add nine rigs and we did see a very old jack-up rig cold stack, so for a net gain of eight. So that may a little more effective of the kind of the general environment for – some of the older rigs to being pushed to retirement. This was a very, I guess reasonably immaterial day rate associated with that that old jack-up and rigs that came online, eight of them obviously much higher ARPU, and I contribute significantly to our results.

[Brandon Dobell:]

Okay. Maybe as a further segue, do you see either operators or the drilling contractors taken a longer time, or maybe a different approach to thinking about adding value-add services, expanding bandwidth. As your sales cycle change at all given the uncertainty with the offshore guys and what they’re seeing for day rates and renewals on contracts?

[Mark Slaughter:]

We're really seeing no change. And, in fact, our belief is that, our services help companies be more productive and more efficient in this environment. So we’re part of the solution as opposed to a cost that can be cut. And we're working actively with our customers, I mentioned one of the awards is with one of our top customers who are helping them with a special project, where they’re looking actively to improve their productivity and efficiency offshore across their rig fleet worldwide. So these are the important initiatives, where we can work in close consultation and partnership with our clients to help them operate in this environment.

[Brandon Dobell:]

Okay. And then maybe, Marty, as we think about the operating expenses in the model, is this quarter a good base rate to think about SG&A for the next (inaudible) quarters? And now there is a little bit of noise and there just some professional fees and things like that. But should we continue to see the same kind of either year-on-year, or sequential ramp in expenses for SG&A, or we guys reached a level now with the Inmarsat assets, I think you’ve got kind of the right SG&A capacity for handful of quarters to grow?

[Marty Jimmerson:]

Without providing specifics, I think you can assume that that number is fairly, it won’t change materially over the next several quarters on a recurring basis.

[Brandon Dobell:]

Okay, gotcha. And then, final one for me, in the adjacent markets, it sounds like you’re pretty comfortable saying that site growth is the bigger driver. At what point do you think the adjacent market kind of revenue algorithm looks more or like the offshore where it’s kind of a 50-50 split between ARPU and sites, some of the adjacent markets right now are primarily if not all site driven, so how does that transition or to an – more even split between ARPU and site growth?

[Mark Slaughter:]

Yes, I'm not sure the exact timing for that, but you are aware of a small player in these more nations step-up. And so our focus really today is adding sites. And then once we get enough critical mass, we certainly expect the ARPU component of that to play, I guess, as it has and is playing out an offshore rig. So, this is part of our strategy of staying within upstream oil and gas, broadening the asset classes that we pursue all about building additional run – growth runways for our investors.

[Brandon Dobell:]

Got it. Okay, thanks guys. I appreciate it.

[Mark Slaughter:]

Thank you, Brandon.

[Operator:]

Thank you. Our next question comes from the line of Veny Aleksandrov from FIG Partners. Your question please?

[Veny Aleksandrov:]

Good morning, Mark and Marty.

[Mark Slaughter:]

Hi, Veny.

[Veny Aleksandrov:]

My first question is on the number of total sites, do you increase the number of rigs, but number of total sites decreased a little bit in the quarter. Can you talk about that, it seems like these were non-material revenue sites, because it doesn’t affect revenues?

[Mark Slaughter:]

Yes, thanks, Veny for the question. One thing to point out, we give our quarter-over-quarter comparisons for three types of sites our offshore rigs, the strategic initiatives, and then all other sites or other sites. And the one way to distinguish this is the high day rates that we earn really on offshore rigs and that there are much lower day rates associated with the strategic initiatives and other. So most of our revenues really generated in the managed services side of our business from offshore rigs. On that basis, the offshore rigs were up eight as reported to 285 rigs in the quarter, which is the most important count to follow. With respect to the other two categories, strategic initiatives, we had a five site decrease, primarily driven by some proving of some of the energy maritime vessels that we were serving that we didn’t find particularly attractive or profitable, but offset partially by some growth in our international land rig market in the Middle East. So I wouldn’t quite drop a trend line there, but I think it is just more some pruning in the quarter to get us positioned. And the other site count area, we had a 14-site decrease. This is – this category is including our U.S. land rig count and remote offices and completion sites. Again, would draw a tread line and again these are low day rate sites. So I wouldn’t draw any conclusions at this point, really what support for us was that, growth in ARPU and count for offshore growing rigs.

[Veny Aleksandrov:]

Thank you. And then if we look at the Eastern Hemisphere, you had very strong margins, you had very strong increase in ARPU. Was this Q3 event are we can continue to depend our results like that?

[Mark Slaughter:]

Well, yes, the Eastern Hemisphere is performing very well for us, very well-positioned there, even though, we see some further geographic expansion opportunities. As I mentioned in my commentary in Africa, we've opened up an office in Cape Town. We’ve opened up now positioned in Kazakhstan in Central Asia. We are very excited about the Eastern Hemisphere and its performance and its continued future prospects. The Western Hemisphere, I’ll just mention, we’re also excited about as well, that’s where the bulk of the Inmarsat acquisition occurred as we rolled in those additional and enhanced capabilities such as a microwave network that spans the Gulf of Mexico Shelf and we extend into the deepwater. We’re very excited about the prospects there.

[Veny Aleksandrov:]

Okay. Thank you. And the last question, (inaudible) guidance, how should we think about the tax rate? I mean, these quarters were 44.5% shouldn’t – do you think it’s going to go down Q4 and next year or how should we model?

[Martin Jimmerson:]

Yes, Veny, I think we’ve been pretty consistent with this. Our tax rate is just very hard to predict as to what it’s going to be. I think we’ve encouraged everyone to think about 40%, it will be somewhere in that range. We were impacted this quarter by non-cash compensation, that we’re unable to take the benefit of those deductions currently. But over time we expect to be able to do that. So, again, for the – I just don’t want to tell you, raise your tax rate or lower your tax rate. Just keep it around 40%, I think over time we’ll be able to be close to that, if not, better.

[Veny Aleksandrov:]

Appreciate it, thank you.

[Mark Slaughter:]

Yes, thanks, Veny.

[Martin Jimmerson:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Michael McCormack from Jefferies. Your question, please.

[Michael McCormack:]

Hey, guys. Thanks. Obviously, you guys have very close relationships with your customers and I’m just trying to get a sense. I mean, obviously your services or requirement and – becoming more and more important for them, but given the environment in oil prices and some of the pressures in their industry, are you seeing any change in their posturing to surround price sensitivity to various things that you’re doing or contract length? Secondly, there’s a report a couple of days ago on Carnival Cruise this WiFi@Sea, clearly not a direct competitor to you in anyway, but just thinking about maybe supply ships, is that something that could be a replacement for the kind of services you’re offering? And then finally, if I may, the Global Xpress acquisition, thinking about how your current customers are responding to the new technology offerings and how quickly that might ramp-up. Thanks.

[Martin Jimmerson:]

Yes, in terms of our customer base, obviously we do stay in very close contact operationally. We have a chance to see the C-level executives, both privately and speak to – and see them or present at the investor conferences. There’s obviously a bit of a pause or a bit of a slowdown a bit in off-shore drilling and thereby taking stock of that. But we’re a very small vendor in that overall equation and viewed by most of our customers as a strategic vendor. In other words, we’re very mission critical to their operations. So if we were to in effect give away our services, it wouldn’t make – it wouldn’t have any impact on the cost of drilling a well, yet we’re highly vital to allow customers to direct and manage such off-shore operations from a smart-room or decision center. So we see ourselves working with our clients. We know the environment has changed a bit, we’re trying to work with them to improve productivity and efficiency in those sorts of projects and we certainly expect that to continue. With respect to Carnival, I think what you’re talking about or some announcements by some of the players in the cruise ship industry that we don’t operate in, where they’re offering a hybrid Wi-Fi that look – these are more sophisticated routers that search for either a satellite or perhaps more terrestrial Wi-Fi networks to deliver the best service available depending on where the cruise ship is. In our case, our offshore rigs that we principally serve are more semi-permanent and not really rolling in and out of port all the time and not on the move all the time. And so from that standpoint, we’ll certainly study those sorts of solutions but they’re not nearly as applicable in our view to an offshore rig environment.

[Michael McCormack:]

Yes, I guess, there is this thing, Mark, more on the like the supply shifts and tertiary opportunities that there’s something that might be replacement.

[Marty Jimmerson:]

Well, yes, I mean, you mean in terms of technologies or what are you describing there?

[Michael McCormack:]

Yes, I mean, I don’t know what the cost looks like for that product, but if supply ships can use it both in-port as well as satellite based services on the way out to the rigs, is that something you guys think about or is it just not really a competitive front?

[Marty Jimmerson:]

Well, rigs aren’t as – in the port is all. Maybe what I could talk about is in the Gulf of Mexico though, we have acquired is Gulf of Mexico microwave network that covers 25,000 square miles and it has a WiMAX overlay, terrestrial wireless overlay that allows us to touch rigs, production facilities, and energy maritime vessels. That’s obviously a preferred method because of the load latency associated with that network and a higher throughput that you can accomplish with it for our customers. It would be preferred over satellite that the challenge in the offshore drilling arena is not every geographic market has enough concentration of oil and gas drilling activity to support such a network. It is supported in the Gulf of Mexico and a bit in the North Sea. And where we have the ability to provide terrestrial wireless solutions we certainly do that.

[Michael McCormack:]

Okay. And then I guess, Mark, just comments on the Global Xpress, what you’re current kind of interests in?

[Mark Slaughter:]

Yes, Global Xpress, continue to be excited about it that there is one of the three birds in the air and we’re doing some testing with it in the Middle East currently. As you probably know if you follow the satellite operator industry there have been some generally launch delay. It’s really across all the high throughput satellite providers, but we remain confident that all three satellites will be up and in place at that or – excuse me, will be up and in place in the next year to year-and-a-half or so. And so we’re excited about it. We have an oil show this week where we’ll be talking more about that here in Houston.

[Michael McCormack:]

Just any feedback from your current customers on their interest, willingness to buy those products and services?

[Mark Slaughter:]

Yes, I think, we see Global Xpress as being targeted in areas, because it’s Ka-band, a bit more in the early days towards drier climate. So Middle East and other areas is going to be because of its mobility characteristics highly suited for the oil field services industry and also in lower bandwidth configurations say, like land drilling. And then we want to carefully consider it with respect to the offshore drilling environment, first, looking at crew morale and the crew Wi-Fi type offerings. While we have announced this particular agreement with Inmarsat, you can expect us to have other high throughput satellite offerings with other satellite operators and at appropriate times we’ll be able to announce those as well.

[Michael McCormack:]

Great. Thanks, guys.

[Mark Slaughter:]

Yes, thank you, Mike.

[Marty Jimmerson:]

Thank you, Mike.

[Operator:]

Thank you. Our next question comes from the line of Tim Horan from Oppenheimer. Your question, please.

[Timothy Horan:]

Thanks, guys. Mark, is there a price point that the operators are telling you that they are more likely of – of oil that is that they’re more likely to start want to stacking rigs at accelerated pace where it becomes unprofitable to really go out there and drill for deep-sea oil?

[Mark Slaughter:]

Well, I’m not sure there’s a specific price point. It comes down to two things. One, is where the oil price is and secondly, how long it stays there. So if there’s a prolonged contraction in price that could have more of an impact than maybe where the price is. The industry to my understanding really works off of an economic reference point for various projects. And the industry particularly in offshore takes a much longer term view of where oil and gas prices will be than just the current spot-prices and not to the extent that there is a protracted downturn that economic reference point may adjust as a result of that but ultimately the industry has a long term belief in the attractive fundamentals of the industry. And so because of that the offshore drilling business generally hasn’t responded as rapidly as say the U.S. land drilling business does to oil and gas movements in the near term. So the answer is we don’t – there’s obviously a lot of conversation around oil prices. I think there’s one operator, who said he actually likes the current price around $80 versus a $125, because it just makes more sense as being a sustainable price for it. That’s maybe one contrarian view. But obviously we love to see higher prices that’s more supportive of activity, but offshore, we do certain expect the operators and then to take the longer term view.

[Timothy Horan:]

Do you have a rough idea what the total cost of extraction per barrel is, offshore?

[Mark Slaughter:]

Well, that’s going to be a global average, I mean, it differs between shallow and deepwater, in various parts of the world it’s going to differ. That’s really a hard one to answer and I’m probably not the best one to answer that.

[Timothy Horan:]

Sure, and you’ve been talking a quite a bit lately about digital oilfield. Can you talk about maybe what new applications or technologies you’re selling or maybe what your customers are using as part of this new digital world?

[Mark Slaughter:]

Yes, we talked about that a little bit in terms of the services that we may also want to offer around that, but it can be asset tracking and utilization. It can be supply chain management, we support real-time, what’s called real-time or integrated operations in Europe, but real-time here in the U.S., which is allowing the direction and oversight of offshore drilling operations from a smart-room or decision center. All of these fit into our play, we think it’s borne out in our results of throwing bandwidth needs at the edge to support all of these activities.

[Timothy Horan:]

And you’re helping with those activities; you’re helping with the asset tracking, are you implementing that?

[Mark Slaughter:]

Well, we are offering the associated bandwidth for many applications. We participate in real-time offerings as well. And part of our organic and inorganic moves are contemplative of adding some additional services around our core remote networks around the world.

[Timothy Horan:]

And it seems like Inmarsat had very strong results. Is that due to the microwave or customer in the Gulf or in the WiMAX are customers, are you seeing strong uptake of that product? Are they starting to shut down or minimize your satellite bandwidth and starting to add this part of it, maybe some of the reasons for the strength. Thanks.

[Marty Jimmerson:]

Yes, when you say Inmarsat performed well, it’s really today, it’s carved out into our east and west segments as well as the TSI business. And the TSI business did have a good quarter, but that also includes the Nessco acquisition from 2012. But I could say just for Inmarsat which we acquired in January this year. We’ve been pleased this year at the pace of integration. We’re pleased with the talented and motivated workforce that’s come onboard and we’re pleased with the enhanced capabilities that we’ve picked up. In the Gulf of Mexico we’re very excited about that microwave network and WiMAX overlay. We believe that gives us completely differentiated capabilities in the Gulf. And we’ll continue to understand and grow that asset in the gulf, but also look for opportunities to take those capabilities to other markets overtime.

[Timothy Horan:]

Thank you.

[Marty Jimmerson:]

Yes, very good.

[Operator:]

Thank you. This does conclude the question-and-answer session of today’s program. I’d like to hand the program back to management for any further remarks.

[Mark Slaughter:]

Jonathan, thank you. And again to all our listeners, thank you for listening and participating today. And this concludes our third quarter earnings call and we look forward to talking to you sometime in February on our year-end results. Thanks again.

[Operator:]

Thank you, ladies and gentlemen, for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.