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When an MSP Vertical Market Goes From Boom to Bust

Conventional wisdom says VARs and MSPs the specialize in vertical markets are well-suited for long-term growth. But sometimes, betting the business on a specific vertical market can backfire. Just ask RigNet (NASDAQ: RNET), an MSP that continues to navigate challenging times in the oil and gas industry.

On the upside, RigNet just renewed a contract to provide remote communication services and SaaS for a global offshore driller’s entire marketable fleet. Through the multi-year contract, RigNet will deliver a VSAT managed service for the customer’s fleet. Although financial terms weren’t disclosed, it was a welcome win within in a sea of remaining challenges.

Indeed, RigNet announced layoffs in July amid continued vertical market weakness. How weak? In an August 8, 2016 SEC filing, RigNet described how its addressable market has been shrinking:

  • As of June 30, 2016, the company was serving 211 jack up, semi-submersible and drillship rigs, a decrease of 59 rigs since June 30, 2015.
  • The company’s addressable market share was 29.5% as of June 30, 2016, which is down compared to 35.4% as of June 30, 2015.
  • Since October 1, 2014, RigNet has been notified directly by customers or through public announcements that 95 offshore drilling rigs the company serves will be cold-stacked or scrapped. RigNet’s revenue from those particular drilling rigs was $17.5 million in 2015, down sharply from $26.2 million in 2014.
  • By June 30, 2016, RigNet stopped providing communication services on 80 of those 95 offshore drilling rigs.
  • According to The Baker Hughes Rig Count, U.S. land rigs have declined approximately 76.1% to 462 units in July 2016 since its most recent peak of 1,931 in late November 2014. Though the figure has rebounded a bit from a recent low of 404 in May.

I’m not criticizing RigNet for the challenges above. By all accounts, the company is a deeply respected MSP in the oil and gas sector. But booms and busts are a reality in that sector — as the detailed data points above show.

When the layoff announcements arrived in July 2015, RigNet emphasized that it planned to move into additional vertical markets. However, I don’t believe the company has disclosed which verticals it will now pursue.

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