UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q /A

Amendment No. 1

☒	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2016

☐	Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number: 333-186684

Goodman Networks Incorporated

(Exact name of registrant as specified in its charter)

Texas		74-2949460
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
2801 Network Boulevard, Suite 300 Frisco, TX		75034
(Address of principal executive offices)		(Zip Code)

972-406-9692

(Registrant’s telephone number, including area code)

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 Act of 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 such filing requirements for the past 90 days.* YES ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 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 submit and post such files). YES ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

As of November 11, 2016, there were 912,754 shares of the registrant’s common stock, $0.01 par value, outstanding.

*	The registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, but is not required to file such reports under such sections.

Explanatory Note

We are filing this Amendment No. 1 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 that was originally filed with the Securities and Exchange Commission on November 14, 2016 (the “Form 10-Q”). This Amendment No.1 is being filed solely for the purpose of filing corrected certifications set forth in Exhibits 31.1, 31.2 and 32.1. This Amendment No. 1 amends and restates Exhibit 31.1 and 32.1 in their entirety, removes Exhibit 31.2 and includes updated Exhibits 31.1 and 32.1. No other information in the Form 10-Q is amended hereby.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited)		4
Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)		5
Consolidated Statements of Cash Flows (Unaudited)		6
Notes to Consolidated Financial Statements (Unaudited)		8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		24

Item 3. Quantitative and Qualitative Disclosures about Market Risk		42

Item 4. Controls and Procedures		43

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		44

Item 1A. Risk Factors		44

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		46

Item 3. Defaults Upon Senior Securities		46

Item 4. Mine Safety Disclosures		46

Item 5. Other Information		47

Item 6. Exhibits		47

Signatures		48

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements	Goodman Networks Incorporated
Consolidated Balance Sheets
(In Thousands, Except Share Amounts and Par Value)
	(Unaudited)

	December 31, 2015			September 30, 2016
Assets
Current Assets
Cash	$	39,832		$	62,911
Restricted Cash		—			22,500
Accounts receivable, net of allowances for doubtful accounts of $107 at December 31, 2015 and $119 at September 30, 2016		21,179			32,331
Unbilled revenue on completed projects		695			1,939
Costs in excess of billings on uncompleted projects		3,428			3,565
Inventories		10,175			11,977
Prepaid expenses and other current assets		3,147			5,931
Assets held for sale		41,749			—
Income tax receivable		204			214
Total current assets		120,409			141,368

Property and equipment, net of accumulated depreciation of $30,140 at December 31, 2015 and $22,167 at September 30, 2016		19,036			19,140
Deposits and other assets		2,357			5,003
Insurance collateral		15,035			14,747
Deferred financing costs		98			1,196
Intangible assets, net of accumulated amortization of $14,508 at December 31, 2015 and $16,397 at September 30, 2016		14,412			12,523
Long-term assets held for sale		4,131			—
Goodwill		67,296			58,648
Total assets	$	242,774		$	252,625

Liabilities and Shareholders' Deficit
Current Liabilities
Line of credit	$	—		$	7,696
Accounts payable		23,748			26,713
Accrued expenses		47,451			33,639
Income taxes payable		311			891
Billings in excess of costs on uncompleted projects		2,930			1,277
Deferred revenue		2,295			1,536
Liabilities related to assets held for sale and discontinued operations		35,076			12,196
Deferred rent		51			40
Current portion of capital leases		775			574
Total current liabilities		112,637			84,562

Notes payable, net of deferred financing cost		315,846			318,416
Capital lease obligations		400			242
Long-term liabilities held for sale and discontinued operations		325			1,293
Accrued expenses, non-current		6,842			7,273
Deferred revenue, non-current		8,973			11,671
Deferred tax liability		1,714			1,359
Deferred rent, non-current		168			177
Total liabilities		446,905			424,993

Shareholders' Deficit
Common stock, $0.01 par value, 10,000,000 shares authorized; 1,029,072 issued and 912,754 outstanding at December 31, 2015 and September 30, 2016		10			10
Treasury stock, at cost, 116,318 shares at December 31, 2015 and September 30, 2016		(11,756	)		(11,756	)
Additional paid-in capital		25,914			26,557
Accumulated other comprehensive income		18			23
Accumulated deficit		(218,317	)		(187,202	)
Total shareholders' deficit		(204,131	)		(172,368	)
Total liabilities and shareholders' deficit	$	242,774		$	252,625

See accompanying notes to the consolidated financial statements

Goodman Networks Incorporated

Consolidated Statements of Operations and Comprehensive Income (Loss)

(In Thousands)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2016			2015			2016
Revenues	$	93,938		$	104,335		$	254,935		$	282,192
Cost of revenues		77,032			91,381			214,406			241,206
Gross profit (exclusive of depreciation and amortization included in selling, general and administrative expense shown below)		16,906			12,954			40,529			40,986
Selling, general and administrative expenses		18,068			15,745			59,143			43,235
Restructuring expense		250			221			7,892			1,621
Impairment expense		—			—			2,142			8,767
Operating loss		(1,412	)		(3,012	)		(28,648	)		(12,637	)
Interest expense, net		11,053			11,113			32,925			33,100
Loss before income taxes and discontinued operations		(12,465	)		(14,125	)		(61,573	)		(45,737	)
Income tax expense (benefit)		48			(18,153	)		387			(18,087	)
Income (Loss) from continuing operations before discontinued operations		(12,513	)		4,028			(61,960	)		(27,650	)
Discontinued operations, net of income taxes		190			60,316			11,365			58,765
Net income (loss)		(12,323	)		64,344			(50,595	)		31,115
Other comprehensive income (loss):		26			(14	)		26			(5	)
Comprehensive income (loss)	$	(12,297	)	$	64,330		$	(50,569	)	$	31,110

See accompanying notes to the consolidated financial statements

Goodman Networks Incorporated

Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)

	Nine Months Ended September 30,
	2015			2016
Operating Activities
Net (loss) income	$	(50,595	)	$	31,115
Net income from discontinued operations		(11,365	)		(58,765	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization of property and equipment		3,258			2,904
Amortization of intangible assets		4,357			1,889
Amortization of debt discounts and deferred financing costs		2,691			1,472
Impairment charges		2,142			8,767
Change in estimate of doubtful accounts		(176	)		581
Deferred tax expense (benefit)		279			(355	)
Share-based compensation expense		4,468			643
Change in fair value of contingent consideration		(726	)		—
Disposal on property and equipment		—			119
Changes in:
Accounts receivable		(7,704	)		(5,410	)
Unbilled revenue		(3,510	)		(1,244	)
Costs in excess of billings on uncompleted projects		(2,512	)		(136	)
Inventories		9,191			(1,802	)
Prepaid expenses and other assets		(3,915	)		(5,144	)
Accounts payable and other liabilities		14,932			(10,407	)
Income taxes payable / receivable		(1,693	)		570
Billings in excess of costs on uncompleted projects		1,276			(1,653	)
Deferred revenue		1,968			1,939
Deferred rent		(329	)		(2	)
Net cash used in continuing operating activities		(37,963	)		(34,919	)
Net cash provided by discontinued operating activities		5,889			(15,521	)
Net cash used in operating activities		(32,074	)		(50,440	)

Investing Activities
Purchases of property and equipment		(1,780	)		(2,704	)
Proceeds from the sale of property and equipment		11			—
Net cash used in continuing investing activities		(1,769	)		(2,704	)
Net cash (used in) provided by discontinued investing activities		(738	)		91,391
Net cash (used in) provided by investing activities		(2,507	)		88,687

Financing Activities
Proceeds from lines of credit		568,302			459,361
Payments on lines of credit		(568,302	)		(451,665	)
Payments on capital leases, notes payable		(815	)		(359	)
Payments on guarantee arrangements		(4,000	)		—
Net cash (used in) provided by continuing financing activities		(4,815	)		7,337
Net cash (used in) provided by financing activities		(4,815	)		7,337

Effect of exchange rate changes on cash		26			(5	)
Increase (decrease) in cash		(39,370	)		45,579
Cash, Beginning of Period		76,703			39,832
Cash, End of Period	$	37,333		$	85,411

See accompanying notes to the consolidated financial statements

Goodman Networks Incorporated

Consolidated Statements of Cash Flows (Continued)

(In Thousands)

(Unaudited)

	Nine Months Ended September 30,
	2015		2016
Supplemental Cash Flow Information
Cash paid for interest	$	40,156	$	40,186
Cash paid for income taxes	$	2,389	$	314

Supplemental Non-Cash Investing and Finance Activities
Purchase of property and equipment financed through capital leases and other financing arrangements	$	197	$	—

See accompanying notes to the consolidated financial statements

Goodman Networks Incorporated

Notes to Consolidated Financial Statements

(Unaudited)

Note 1. Organization and Business

Goodman Networks Incorporated, a Texas corporation (“Goodman Networks” and collectively with its subsidiaries, the “Company”), is a leading provider of installation and maintenance services for satellite communications. The Company also provides network infrastructure and professional services to the telecommunications industry. The Company serves the satellite television industry by providing onsite installation, upgrade and maintenance of satellite television systems to both the residential and commercial market customers. The Company’s professional services include the design, engineering, construction, deployment, and maintenance of small cell and distributed antenna systems (“DAS”). The Company’s wireless telecommunications services include the maintenance, and decommissioning of wireless networks for traditional cell towers. These highly specialized and technical services are critical to the capability of the Company’s customers to deliver video, data and voice services to their end users.

Disposition of Business Unit

On July 6, 2016, the Company completed the sale of the Assets to Dycom pursuant to the terms and conditions of the Agreement, as amended. The Company’s financial results for the periods prior to the sale of the wireless network deployment and wireline business have been reflected in our unaudited consolidated statement of operations and comprehensive income (loss), retrospectively, as discontinued operations. Additionally, the related assets and liabilities associated with the discontinued operations in the prior years are classified as held for sale in the unaudited consolidated balance sheet. As consideration for the Assets, Dycom paid the Company approximately $107.5 million, which was subject to a customary working capital adjustment currently estimated to require the Company to pay Dycom $4.7 million, and assumed certain liabilities of the Company. $22.5 million of the proceeds from the sale of the Assets has been deposited into an indemnity escrow account, reflected as Restricted cash in the consolidated balance sheet and will be held until certain conditions are fulfilled. We deposited the net proceeds from the sale of the Assets received as of July 6, 2016 in two accounts. $35.0 million of the net proceeds were deposited in an account subject to the control of PNC Bank, National Association (now Midcap Financial Trust) (the “New Credit Facility Account”), and $45.3 million of the net proceeds were deposited into an account subject to the control of the collateral trustee (the “Notes Account”). See Note 3 – Discontinued Operations and Note 7 – Notes Payable for additional information.

Restructuring Activities

In 2014, management approved, committed to and initiated plans to restructure and further improve efficiencies in operations, including further integrating the operations of Multiband Corporation (“Multiband”) and the Custom Solutions Group (“CSG”) of Cellular Specialties, Inc. (the “2014 Restructuring Plan”). The restructuring costs associated with the 2014 Restructuring Plan are recorded in the restructuring expense line item within the unaudited consolidated statements of operations and comprehensive income (loss). See Note 16 – Restructuring Activities for a summary of restructuring activities and costs.

In connection with the sale of the Company’s wireless network deployment and wireline business, the Company completed its 2014 Restructuring Plan and approved, committed to and initiated plans to reduce its selling, general and administrative costs in line with the Company’s continuing operations (the 2016 Restructuring Plan).

Note 2. Summary of Significant Accounting and Reporting Policies

The accompanying unaudited consolidated financial statements have been prepared in all material respects pursuant to U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information. Pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The accompanying unaudited consolidated financial statements have been prepared on the same basis as the consolidated financial statements for the year ended December 31, 2015.

Because certain information and footnote disclosures have been condensed or omitted, these unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2015, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 (the “2015 Annual Report”). In management’s opinion, all normal and recurring adjustments considered necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented have been included. Management believes the disclosures presented in these unaudited consolidated financial statements are adequate and do not make the information

misleading. Certain prior year amounts have been reclassified to conform to the current period presentation. Interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year.

There have been no changes in the Company’s significant accounting policies from those that were disclosed in the Company’s 2015 Annual Report.

Principles of Consolidation

The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Key estimates for the Company include: the recognition of revenue, in particular, estimated losses on long term construction contracts, allowance for doubtful accounts, inventory valuation, asset lives used in computing depreciation and amortization, valuation of intangible assets, valuation of contingent consideration, allowance for self-insurance health care claims incurred but not reported, valuation of stock options and other equity awards, particularly related to fair value estimates, accounting for income taxes, contingencies and litigation. While management believes that such estimates are reasonable when considered in conjunction with the financial position and results of operations taken as a whole, actual results could differ from those estimates, and such differences may be material to the consolidated financial statements.

Revenue Recognition

The Company recognizes revenue when: (i) persuasive evidence of a customer arrangement exists; (ii) the price is fixed or determinable; (iii) collectability is reasonably assured; and (iv) product delivery has occurred or services have been rendered. The Company recognizes revenue as services are performed and completed.

The Company enters into contracts that require the construction and/or installation of specific units within a network system. Revenue from construction and installation contracts is recorded using the completed contract method of accounting. Under the completed contract method, revenues and costs from construction and installation projects are recognized only upon substantial completion of the project. Project costs typically include direct materials, labor and subcontractor costs, and indirect costs related to contract performance, such as indirect labor, supplies, and tools. Provisions for estimated losses on uncompleted contracts are recognized when it has been determined that a loss is probable.

The Company also enters into contracts to provide engineering and integration services related to network architecture, transformation, reliability and performance. Revenues and costs from service contracts are generally recognized at the time the services are completed under the completed performance model. Services are generally performed under master or other services agreements and are billed on a contractually agreed price per unit of service on a work order basis. Services invoiced prior to the performance of the obligation are recorded in deferred revenue and recognized as the services are performed.

The total amount of gross billings on uncompleted contracts as of December 31, 2015 and September 30, 2016 was $14.9 million and $8.1 million, respectively.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delayed the effective date of ASU 2014-09 by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities should apply the guidance in ASU 2014-09 for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. All other entities may apply the guidance in ASU 2014-09 earlier for annual reporting period beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities also may apply the guidance in ASU 2014-09 earlier for

annual reporting period beginning after December 15, 2016, and interim reporting periods within annual reporting periods beginning one year after the annual reporting period in which the entity first applies the guidance in ASU 2014-09. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory (“ASU 2015-11”), which requires in scope inventory to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using last-in, first-out (LIFO) or the retail inventory method. The amendments do not apply to inventory that is measured using LIFO or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. The ASU is effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. ASU 2015-11 requires prospective application, with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is evaluating the effect that ASU 2015-11 will have on its consolidated financial statements and related disclosures.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01, which provides guidance for the recognition, measurement, presentation and disclosure of financial assets and financial liabilities. ASU 2016-01 is effective for fiscal years, and for interim periods within those years, beginning after December 15, 2017 and, for most provisions, is effective using the cumulative-effect transition approach. Early application is permitted for certain provisions. The Company is currently evaluating the potential effect of this ASU on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Subtopic 842) (“ASU 2016-02”). ASU 2016-02 provides revised guidance for lease accounting and related disclosure requirements, including a requirement for lessees to recognize lease assets and lease liabilities for operating leases with a duration of greater than one year. Under the previous guidance, lessees were not required to recognize assets and liabilities for operating leases on the balance sheet. ASU 2016-02 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. Modified retrospective application is required for all relevant prior periods. The Company is currently evaluating the potential impact of this ASU on its consolidated financial statements. Upon adoption, the Company expects to recognize lease assets and liabilities for certain of its operating leases on the Company’s consolidated balance sheets.

In March 2016, the FASB issued ASU No. 2016-09, Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). The new guidance was developed as part of the FASB's simplification initiative. The core principle of the ASU is that all income tax effects of awards are to be recognized in the statement of operations and comprehensive income (loss) when the awards vest or are settled, it allows an employer to repurchase more of an employee's shares than it can currently for tax withholding purposes without triggering liability accounting, and allows an employer to make a policy election to account for forfeitures as they occur. ASU 2016-09 is effective for annual reporting periods, including interim periods within those annual periods, beginning after December 15, 2016. However early adoption is permitted. The Company anticipates the adoption in the effective period and is currently evaluating the effect, if any, that the ASU 2016-09 will have on the consolidated financial statements and related disclosures.

In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (“ASU 2016-10”). The amendments add further guidance on identifying performance obligations and also to improve the operability and understandability of the licensing implementation guidance. The amendments do not change the core principle of the guidance in Topic 606. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Topic 606. Public entities should apply the amendments for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein. Early application for public entities is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods therein. The Company is currently evaluating the potential impact of ASU 2016-10 on its consolidated financial statements.

In May 2016, the FASB issued ASU No. 2016-12 Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”). The amendments, among other things: (1) clarify the objective of the collectability criterion for applying paragraph 606-10-25-7; (2) permit an entity to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price; (3) specify that the measurement date for noncash consideration is contract inception; (4) provide a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining the

transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations; (5) clarify that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application, and (6) clarify that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. The effective date of these amendments are the same date that Topic 606 is effective. Topic 606 is effective for public entities for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein. The Company is currently evaluating the potential impact of ASU 2016-12 on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, which amended the guidance of FASB Accounting Standards Codification Topic 230, Statement of Cash Flows (ASC 230) on the Classification of Certain Cash Receipts and Payments (“ASU 2016-15”). The primary purpose of ASU 2016-15 is to reduce the diversity in practice which has resulted from a lack of consistent principles on this topic. The amendments of ASU 2016-15 add or clarify guidance on eight specific cash flow issues, including debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. The guidance of ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is evaluating the impact of this guidance on its consolidated financial statements.

Recent Accounting Pronouncements Adopted in 2016.

In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”), to simplify the presentation of debt issuance costs. ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts. The new standard is effective for the Company in the fiscal year beginning after December 15, 2015. The Company adopted ASU No. 2015-03 as of January 1, 2016. Prior period deferred financing costs of $10.3 million in the consolidated balance sheets as of December 31, 2015, has been reclassified to conform to the current period as required by the standard. See Note 7 to the Consolidated Financial Statements for further updates.

In April 2015, the FASB issued ASU No. 2015-05, Intangibles - Goodwill and Other - Internal-Use Software: Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (“ASU 2015-05”). ASU 2015-05 provides guidance for evaluating whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the software license element of the arrangement should be accounted for consistently with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the arrangement should be accounted for as a service contract. ASU 2015-05 does not change the accounting for service contracts. As a result of ASU 2015-05, all software licenses within the scope of the amendment will be accounted for consistently with other licenses of intangible assets. The new standard is effective for the Company in the fiscal year beginning after December 15, 2015. An entity can elect to adopt the amendments either: (1) prospectively to all arrangements entered into or materially modified after the effective date; or (2) retrospectively. The Company adopted ASU 2015-05 in the first quarter of 2016. The adoption of the new guidance did not have a material effect on the consolidated financial statements and related disclosures.

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16”). ASU 2015-16 eliminates the requirement to retrospectively account for adjustments to provisional amounts within the measurement period recognized at the acquisition date in a business combination. ASU 2015-16 requires that these adjustments be recognized in the reporting period in which the adjustment amounts are determined and be calculated as if the accounting had been completed as of the acquisition date. ASU 2015-16 is effective prospectively for fiscal years, and for interim periods within those years, beginning after December 15, 2015. The Company adopted ASU 2015-16, however the adoption of the guidance did not have a material effect on the consolidated financial statements and related disclosures.

Note 3. Discontinued Operations

On July 6, 2016, the Company completed the sale of assets to Dycom pursuant to the terms and conditions of the Agreement with Dycom, pursuant to which the Company sold certain Assets to Dycom, and Dycom agreed to assume certain liabilities of the Company, related to the Company’s former wireless network deployment and wireline businesses within the Infrastructure Services segment. As a result, the Company has classified the results of the wireless network deployment and the wireline businesses as discontinued operations in the unaudited consolidated statements of operations and comprehensive income (loss) for all periods presented. Additionally, the related assets and liabilities associated with the discontinued operations are classified as held for sale in the unaudited consolidated balance sheets. The following table presents the aggregate carrying amounts of the classes of held for sale assets and liabilities and discontinued operations as of December 31, 2015 and September 30, 2016.

	December 31, 2015		September 30, 2016
	(In thousands)
Assets
Carrying amounts of assets included as part of discontinued operations:
Accounts receivable, net	$	7,633	$	—
Unbilled revenue on completed projects		11,060		—
Costs in excess of billings on uncompleted projects		17,632		—
Inventories		5,177		—
Prepaid expenses and other current assets		247		—
Property and equipment, net		2,053		—
Deposits and other assets		196		—
Goodwill		1,882		—
Total assets classified as held for sale in the consolidated balance sheets	$	45,880	$	—

Carrying amounts of liabilities included as part of discontinued operations:
Accounts payable	$	22,138	$	—
Accrued expenses		9,743		12,196
Billings in excess of costs on uncompleted projects		3,131		—
Deferred rent - short term		64		—
Other non-current liability		79		1,293
Deferred rent - long term		246		—
Total liabilities related to liabilities held for sale and discontinued operations in the consolidated balance sheets	$	35,401	$	13,489

The following table presents the financial results related to discontinued operations for the three and nine months ended September 30, 2016 (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2015		2016			2015		2016
Revenues	$	71,557	$	24,949		$	310,604	$	110,345
Cost of revenues		66,533		27,310			283,251		104,099
Gross profit (exclusive of depreciation and amortization included in selling, general and administrative expense shown below)		5,024		(2,361	)		27,353		6,246
Selling, general and administrative expenses		4,543		7,920			13,641		16,836
Restructuring expense		251		2,238			1,617		3,178
Impairment expense		—		386			633		667
Gain on sale of assets		—		(91,947	)		—		(91,947	)
Operating income		230		79,042			11,462		77,512
Interest expense, net		—		9			—		9
Income before income taxes		230		79,033			11,462		77,503
Income tax expense		40		18,717			97		18,738
Net income from discontinued operations	$	190	$	60,316		$	11,365	$	58,765

The following table presents the cash flow related to discontinued operations for the nine months ended September 30, 2016 (in thousands):

	Nine Months Ended September 30,
	2015			2016
Net cash provided by (used in) discontinued operating activities	$	5,889		$	(15,521	)
Net cash provided by (used in) discontinued investing activities		(738	)		91,391
Net cash provided by (used in) discontinued financing activities		—			—

Note 4. Property and Equipment

Property and equipment consisted of the following: (in thousands)

	December 31, 2015			September 30, 2016
Software	$	19,065		$	14,599
Computers and office equipment		9,635			20,174
Furniture and fixtures		1,112			1,322
Other equipment		3,067			2,078
Vehicles		80			2
Construction in process		14,433			1,664
Leasehold improvements		1,784			1,468
		49,176			41,307
Less: accumulated depreciation and amortization		(30,140	)		(22,167	)
Property and equipment, net	$	19,036		$	19,140

Depreciation and amortization of property and equipment for the three months ended September 30, 2015 and 2016 was $0.9 million and $1.0 million, respectively, and $3.3 million and $2.9 million, for the nine months ended September 30, 2015 and 2016, which has been recorded in selling, general and administrative expenses.

The Company entered into a lease contract during 2014 for a right of use license with nonexclusive access to certain DAS deployment sites. The term of the right of use is an initial ten years with two optional renewals of five years each. Prior to the completion, the Company recorded the cost of the DAS system within fixed assets as construction in process. In March 2016, the Company completed the DAS system and the costs are recorded to computers and office equipment and are depreciated over the asset’s useful life of 10 years.

Note 5. Goodwill and Intangibles

The Company assigns goodwill to a reporting unit and tests the goodwill annually on October 1 unless a triggering event had occurred. A reporting unit is defined as an operating segment or one level below an operating segment. The reporting units are not the equivalent to the reportable segments as we have five reporting units and three reportable segments. The Company’s Infrastructure Services and Field Services segments are each considered a reporting unit. The Company’s Professional Services segment includes two reporting units which are its Core Network Deployment (“CND”) reporting unit and its Central Network Engineering (“CNE”) reporting unit.

The Company assesses goodwill and other intangible assets with indefinite lives for impairment annually and when an event occurs or circumstances change that would suggest a triggering event. If a triggering event is identified, a step one assessment is performed to identify any possible goodwill impairment in the period in which the event is identified. In connection with our annual assessment of goodwill performed during the fourth quarter of calendar year 2015, we updated our key assumptions, including our forecasts of revenue and income for each reporting unit. As previously noted, there can be no assurance that the revenue estimates and assumptions regarding forecasted cash flows, the impact of further declines in AT&T Inc. (“AT&T”) spending, or other inputs used in forecasting the present value of forecasted cash flows will prove to be accurate projections of future performance.

Determining the fair value of a reporting unit or an indefinite-lived intangible asset involves judgment and the use of significant estimates and assumptions, particularly related to future operating results and cash flows. These estimates and assumptions include, but are not limited to, revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions and identification of appropriate market comparable data. Preparation of forecasts and the selection of the discount rate involve significant judgments that we base primarily on existing firm orders, expected future orders, and general market conditions. Significant changes in these forecasts, the discount rate selected, or the weighting of the income and market approach could affect the estimated fair value of one or more of our reporting units and could result in a goodwill impairment charge.

During the three months ended June 30, 2016, the Company concluded that an interim impairment test of the goodwill of its CND reporting unit within the Professional Services segment was necessary. This conclusion was based on certain indicators of impairment, including the reduction in a bid and project backlog for enterprise customers as a result of carriers reducing funding for DAS projects. Prior to conducting the goodwill impairment test, the Company first evaluated the other long-lived assets of the CND reporting unit for recoverability. Recoverability was tested using undiscounted future cash flow projections based on management’s long-range estimates of market conditions. The undiscounted cash flows of the long lived assets of the CND reporting unit including its customer relationships, non-competes and property and equipment exceeded the carrying value.

The Company then looked for indications of impairment of the goodwill of the CND reporting unit by comparing the fair value, determined using discounted cash flows using a weighted income statement and market approach, to its carrying value which indicated that a step 2 calculation to quantify the potential impairment was required. After a subsequent review of the fair value of the net assets of the CND reporting unit, it was determined that the implied fair value of goodwill was $0 and, accordingly, the entire $8.6 million goodwill balance was written-off during the three months ended June 30, 2016. The key assumptions used in the fair value calculations were projected cash flows and the discount rate.

The changes in goodwill, by business segment for the nine months ended September 30, 2016 are as follows (in thousands):

	Field Services		Professional Services			Total
Goodwill at December 31, 2015	$	58,648	$	8,648		$	67,296
Impairment adjustments		—		(8,648	)		(8,648	)
Goodwill at September 30, 2016	$	58,648	$	—		$	58,648

Intangible assets were as follows (in thousands):

	Gross Carrying Amount		Accumulated Amortization		Impairment Charges		Intangible Assets, net
Customer contracts	$	13,900	$	4,297	$	—	$	9,603
Customer relationships		6,610		4,582		—		2,028
Tradename		3,860		3,860		—		—
Noncompete agreements		3,150		2,258		—		892
Customer backlog		1,400		1,400		—		—
Total	$	28,920	$	16,397	$	—	$	12,523

Amortization of intangible assets was $1.5 million and $0.6 million for the three months ended September 30, 2015 and 2016, respectively and $4.4 million and $1.9 million for the nine months ended September 30, 2015 and 2016, respectively.

Note 6. Accrued Expenses

Accrued expenses consist of the following (in thousands):

	December 31, 2015		September 30, 2016
Employee compensation and related costs	$	11,664	$	12,975
Sales and use tax payable		3,122		495
Accrued job loss		644		93
Accrued interest		19,704		9,760
Workers' compensation, current		2,996		3,116
Accrued restructuring costs, current		4,507		1,433
Other, current		4,814		5,767
Total accrued expenses, current	$	47,451	$	33,639

Workers' compensation, non-current	$	5,359	$	5,677
Accrued restructuring & other costs, non-current		1,483		1,596
Total accrued expenses, non-current	$	6,842	$	7,273

Note 7. Notes Payable and Line of Credit

Notes payable consist of the following (in thousands):

	December 31, 2015			September 30, 2016
Senior secured notes due July 1, 2018, net of discount of $1,390 as of December 31, 2015 and $973 as of September 30, 2016 respectively, with stated interest of 12.125%	$	223,610		$	224,027
Senior secured notes due July 1, 2018, including a premium of $2,553 and $1,780 as of December 31, 2015 and September 30, 2016 respectively, with stated interest of 12.125%		102,553			101,780
		326,163			325,807
Less: deferred financing costs		(10,317	)		(7,391	)
Notes payable, net of deferred financials costs	$	315,846		$	318,416

The table below presents the outstanding balance on the Company’s previous credit facility (in thousands):

December 31,

2015

September 30,

2016

Revolving credit facility

—

7,696

On June 23, 2011 the Company issued $225.0 million of its 12.125% senior secured notes due July 1, 2018 (the “Notes”) at a discount of $3.9 million. The Notes issued on June 23, 2011 carry a stated interest rate of 12.125%, with an effective rate of 12.50%. On June 13, 2013, the Company issued an additional $100.0 million of Notes through a subsidiary (the “Tack-On Notes”) as a “tack-on” under and pursuant to the indenture under which the Company issued the Notes. The Tack-On Notes were offered at 105% of their principal amount for an effective interest rate of 10.81%. Interest is payable semi-annually each January 1 and July 1 on the Notes. The Notes are secured by: (i) a first-priority lien on substantially all of the Company’s existing and future domestic plant, property, assets and equipment including tangible and intangible assets, other than the assets that secure the Company’s revolving credit facility with Midcap Financial Trust (the “New Credit Facility”), on a first-priority basis, (ii) a first-priority lien on 100% of the capital stock of the Company’s existing and future material U.S. subsidiaries and non-voting stock of the Company’s existing and future material non-U.S. subsidiaries and 66% of all voting stock of the Company’s existing and future material non-U.S. subsidiaries and (iii) a second-priority lien on the Company’s accounts receivable, unbilled revenue on completed contracts and inventory that secured the New Credit Facility on a first-priority basis, subject, in each case, to certain exceptions and permitted liens.

The Notes: (i) are general senior secured obligations; (ii) are guaranteed by the Company’s existing and future wholly owned material domestic subsidiaries; (iii) rank pari passu in right of payment with all of the Company’s existing and future indebtedness that is not subordinated; (iv) are senior in right of payment to any of the Company’s existing and future subordinated indebtedness; (v) are structurally subordinated to any existing and future indebtedness and other liabilities of the Company’s non-guarantor subsidiaries; and (vi) are effectively junior to all obligations under the New Credit Facility to the extent of the value of the collateral securing the Credit Facility on a first priority basis.

The Company may currently redeem some or all of the Notes at a premium that will decrease over time plus accrued and unpaid interest.

Pursuant to the terms of the indenture governing the Notes, or the Indenture, and subject to certain limitations, the Company is permitted to use the net proceeds from sales of certain assets for limited purposes including, among other things, (i) acquiring all or substantially all of the assets of, or any capital stock of, a business reasonably related to the business the Company conducted when the Notes were originally issued; or (ii) making an investment in replacement assets or making a capital expenditure in or that is used or useful in a business reasonably related to the business the Company conducted when the Notes were originally issued. The Company is permitted to use the net proceeds from sales of other assets for limited purposes including, among other things, (i) making an investment in other secured assets or property or another business reasonably related to the business the Company conducted when the Notes were originally issued if, after giving effect to such investment, such business becomes a guarantor or is merged into or consolidated with the Company or any of its guarantors; (ii) making a capital expenditure with respect to certain assets; or (iii) repaying, repurchasing or redeeming principal and interest on parity lien indebtedness, including the Notes.

Pending the final application of the net proceeds, the Company may temporarily reduce revolving credit borrowings or otherwise invest such net proceeds in any manner that is not prohibited by the Indenture. If the Company does not use the net proceeds from asset sales as permitted by the Indenture within 360 days after their receipt, the Company will be required to make an offer to repurchase the Notes with any remaining net proceeds on a pro rata portion of the Notes at 100% of their principal amount, plus accrued and unpaid interest and additional interest, if any, to the date of repurchase. For any transactions entered into during such 360 day period that would constitute a permitted use of funds in the New Credit Facility Account or the Notes Account under the Indenture, the Company has up to 180 days after the end of the 360 day period to close the transaction.

The terms of the Indenture require the Company to meet certain ratio tests giving effect to anticipated transactions, including borrowing debt and making restricted payments prior to entering these transactions. These ratio tests are, as defined per the Indenture, a Fixed Charge Coverage Ratio of at least 2.00 to 1.00 and a Total Leverage Ratio not greater than 2.50 to 1.00. The holders of the Notes granted a waiver to these covenants in conjunction with the issuance of the Tack-On Notes, and the Company has not entered into any other transaction that requires it to meet these tests as of September 30, 2016. Had the Company been required to meet these ratio tests as of September 30, 2016, the Company would not have met the Fixed Charge Coverage Ratio or the Total Leverage Ratio.

Our ability to continue to pay the principal and interest on our long-term debt and to satisfy our other liabilities ultimately will be dependent upon establishing profitable operations and growing and diversifying our business. If we are unable to improve our profitability and grow our business, it could affect our ability to make interest payments, which would trigger our debt financial covenants and cause us to not be in compliance. The Company continues to focus on formulating and implementing an effective and efficient transaction that maximizes enterprise value and recapitalizes its senior secured notes before 2018. Failure to restructure or refinance these obligations prior to or upon maturity could adversely impact our business and ability to comply with the covenants of our New Credit Facility and Indenture and represents a significant uncertainty as to our ability to continue as a going concern.

On July 29, 2016, the Company, entered into a Revolving Loan Note (the “Revolving Loan Note”) and a Credit and Security Agreement with Midcap Financial Trust, as administrative agent and lender, and the additional lenders parties thereto from time to time (the “New Credit Agreement”), which provides for a maximum commitment of $25 million for the New Credit Facility.

The New Credit Facility is secured by a first lien on the Company’s accounts receivable, inventory, related contracts and other rights and other assets related to the foregoing and proceeds thereof. The New Credit Facility is subject to an intercreditor agreement dated as of June 23, 2011, by and among the Creditor, as the replacement ABL lender thereunder, and U.S. Bank, National Association, as the collateral trustee for benefit of the holders of the Notes.

Availability for borrowings under the New Credit Facility is subject to a borrowing base that is calculated as a function of the value of the Company’s eligible accounts receivable and inventory. Borrowings under the New Credit Facility bear interest at a floating rate equal to the sum of the current LIBOR rate plus an applicable margin of 4.85%. The New Credit Facility terminates, and all outstanding principal and interest thereunder is due and payable, on April 1, 2018.

In addition, the Company is required to pay a monthly collateral management fee and, if the average end-of-day principal balance of revolving loans during the immediately preceding month is less than $6,250,000, a monthly minimum balance fee.

The New Credit Agreement contains customary covenants that place restrictions on, among other things, the incurrence of debt, granting of liens and sale of assets. At all times at which amounts are outstanding under the New Credit Facility, the New Credit Agreement also requires that the Company maintain at least $5,000,000 in minimum liquidity, which includes amounts available for borrowing under the New Credit Facility and unencumbered cash and cash equivalents of the Company. Further, the New Credit Agreement contains customary events of default, subject to certain materiality thresholds and grace periods for certain of those events of default. Upon an event of default, the New Credit Agreement provides that, among other things, the commitments may be terminated and the loans then outstanding may be declared due and payable.

Proceeds from borrowings under the New Credit Facility were used by the Company, together with cash on hand, to repay existing indebtedness outstanding under the Company’s previous credit facility with PNC Bank, National Association (the “Previous Credit Facility”) in full. On July 29, 2016, in connection with the effectiveness of the New Credit Agreement described previously, the Company terminated the commitments under the Previous Credit Facility and repaid all outstanding loans thereunder.

Under the terms of the Previous Credit Facility, the Company was required to meet certain covenants if a Triggering Event occurred. No Triggering Event was in existence as of September 30, 2016 or prior to payoff of the termination of the Previous Credit Facility.

The New Credit Facility limits the Company’s ability to make certain distributions or dividends. As of September 30, 2016 the Company had $7.7 million outstanding on the New Credit Facility.

Note 8. Fair Value Measurements

The carrying values of cash and cash equivalents, accounts receivable, costs in excess of billings on uncompleted projects, accounts payable, accrued liabilities and the line of credit are reflected in the unaudited consolidated balance sheet at historical cost, which is materially representative of their fair value due to the relatively short-term maturities of these assets and liabilities.

The carrying value of the capital lease obligations approximates fair value because they bear interest at rates currently available to the Company for debt with similar terms and remaining maturities.

The carrying value and fair value of the Notes as of December 31, 2015 was $326.2 million and $81.3 million, respectively, and the carrying value and fair value of the Notes as of September 30, 2016 was $325.8 million and $140.0 million, respectively. Fair value for the Notes is a Level 2 measurement and has been based on the over-the-counter-market trading prices as of the respective balance sheet dates.

Note 9. Leases

The Company leases certain equipment under capital leases. The economic substance of these leases is that the Company is financing the acquisition of the equipment through the leases and accordingly, the equipment is recorded as an asset and the leases are recorded as liabilities.

Operating lease commitments relate primarily to rental of vehicles, facilities and equipment under non-cancellable operating lease agreements which expire at various dates through the year 2020. Rent expense for operating leases was approximately $1.3 million and $1.0 million for the three months ended September 30, 2015 and 2016, respectively, and $3.6 million and $3.3 million for the nine months ended September 30, 2015 and 2016.

Note 10. Share-Based Compensation and Warrants

Share-Based Compensation

The following table summarizes stock option activity under the Goodman Networks Incorporated 2008 Long-Term Incentive Plan (the “2008 Plan”) and the Goodman Networks, Incorporated 2000 Equity Incentive Plan (the “2000 Plan”) for the nine months ended September 30, 2016:

	Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
Outstanding at December 31, 2015		571,566		$	64.47		6.23
Forfeited		(22,505	)		77.64
Expirations		(48,831	)		75.05
Outstanding at September 30, 2016		500,230		$	61.71		5.31

Exercisable at September 30, 2016		496,226		$	60.82		5.26

The fair values of option awards granted were estimated at the grant date using a Black-Scholes option pricing model with the following assumptions:

	2015		2016
Expected volatility	60.70% - 67.53%		n/a
Risk-free interest rate	0.35% - 1.62%		n/a
Expected life (in years)	1.00 - 5.65		n/a
Expected dividend yield		0.00%	n/a

The Company did not grant any stock options during nine months ended September 30, 2016. As of September 30, 2016, there was approximately $0.3 million of unrecognized compensation costs related to non-vested stock options. These costs are expected to be recognized over a remaining weighted average vesting period of 0.40 years.

There were no stock options exercised during the nine months ended September 30, 2016. The intrinsic value for stock options vested and expected to vest is $5.4 million.

The compensation expense recognized for outstanding share-based awards was $1.1 million and $0.1 million for the three months ended September 30, 2015 and 2016, respectively, and $4.5 million and $0.6 million for the nine months ended September 30, 2015 and 2016.

Note 11. Related Party Transactions

In 2011, the Company issued a letter of credit to a company owned by a relative of the Company’s former Executive Chairman as a guarantee of the related party’s line of credit. The guarantee liability for the full amount of $4.0 million was paid in full in 2015 by the Company. The liability related to the guarantee was released and the Company no longer maintains any exposure related to the letter of credit. Pursuant to the agreement reached in 2014, the Company agreed to forgive the related party’s obligation to reimburse the Company for amounts advanced under the guarantee if the related party were to make a cash payment to the Company in the amount of $1.5 million plus interest at a rate of 2.0% per annum from September, 25, 2014 and satisfy certain other contingencies. The related party made a cash payment to the Company in the amount of $1.5 million in 2015; however, all obligations have not been satisfied and the related party’s pledged stock of 15,625 shares of Goodman Networks common stock remain as additional paid-in capital in the consolidated balance sheet, and at September 30, 2016, the related party owed the Company the balance of the guaranteed amount plus accrued interest.

The Company had approximately $43,000 and $41,000 of non-interest bearing advances due from a founding shareholder of the Company as of December 31, 2015 and September 30, 2016, respectively, recorded in deposits and other current assets on the unaudited consolidated balance sheets.

Throughout the year, the Company utilizes a ranch owned by certain shareholders for meetings and conferences. The use of the ranch was expensed within the unaudited consolidated statements of operations and comprehensive income (loss) at $13,000 per month for the three and nine months ended September 30, 2015 and 2016.

From time to time, the Company engages in transactions with executive officers, directors, shareholders or their immediate family members of these persons (subject to the terms and conditions of the Indenture and the New Credit Facility). These transactions are negotiated between related parties without arm’s length bargaining and, as a result, the terms of these transactions could be different than transactions negotiated between unrelated persons.

Note 12. Employee Benefit Plan

The Company sponsors a 401(k) retirement savings plan for its employees. Eligible employees are allowed to contribute a portion of their compensation, not to exceed a specified contribution limit imposed by the Internal Revenue Code. The Company’s plan provides for matching employee contributions of 100% on the first 3% of each participant’s compensation and 50% on the next 2%. For the three months ended September 30, 2015 and 2016 employer contributions totaled $1.1 million and $1.2 million, respectively, and contributions totaled $3.5 million and $3.1 million for the nine months ended September 30, 2015 and 2016, respectively.

Note 13. Commitments and Contingencies

General Litigation

The Company is from time to time party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. These actions typically seek, among other things, compensation for alleged personal injury, breach of contract and/or property damages, punitive damages, civil penalties or other losses, or injunctive or declaratory relief. Based upon information currently available, the Company believes that the ultimate outcome of all current litigation and other claims, individually and taken together, and except as described herein, are not expected to have a material adverse effect on the Company’s business, prospects, financial condition or results of operations.

During the three months ended September 30, 2016, in connection with the sale of the Company’s wireless network deployment and wireline business the Company disclosed the existence of an approximately $31.7 million disputed sales tax liability with the State of Texas (the “Sales Tax Liability”). To the extent the State of Texas seeks to enforce the Sales Tax Liability, the Company believes that all or a portion of the Sales Tax Liability is reimbursable by AT&T. The State of Texas may seek to enforce the Sales Tax Liability against the Company; however, the Company disputes any and all liability with respect to the Sales Tax Liability. The Company does not believe the disputed liability is probable at this time and as such, no accrual has been recorded for the assessed value of the liability.

Concentration of Credit Risk

A significant portion of the Company’s revenue is derived from AT&T and subsidiaries of AT&T, including DIRECTV.

The following table reflects the percentage of total revenue from such customer for the three and nine months ended September 30, 2015 and 2016:

	Three months ended September 30,						Nine months ended September 30,
	2015			2016			2015			2016
Subsidiaries of AT&T Inc.		79.9	%		80.3	%		77.6	%		84.3	%
Other		20.1	%		19.7	%		22.4	%		15.7	%

Amounts due from these significant customers at December 31, 2015 and September 30, 2016 were as follows (in thousands):

December 31,

2015

September 30,

2016

Subsidiaries of AT&T Inc.

9,787

20,187

A loss of AT&T and its subsidiaries as a customer would have a material adverse effect on the financial condition of the Company.

Indemnities

The Company generally indemnifies its customers for services it provides under its contracts which may subject the Company to indemnity claims, liability and related litigations. For the nine months ended September 30, 2016, the Company was not aware of any material asserted or unasserted claims in connection with these indemnity obligations.

State Sales Tax

The Company is routinely subject to sales tax audits that could result in additional sales taxes and related interest owed to various taxing authorities. Any additional sales taxes against the Company will be invoiced to the appropriate customer. No assurances can be made, however, that such customers would be willing to pay the additional sales tax.

Note 14. Income Taxes

The Company’s effective tax rate was 39.5% and 0.6% for the nine months ended September 30, 2016 and 2015, respectively. In determining the quarterly provision for income taxes, management uses an actual year to date effective tax rate. The effect of significant discrete items is separately recognized in the quarter in which such items occur. Significant factors that could affect the annual effective tax rate include management’s assessment of certain tax matters, the location and amount of taxable earnings, changes in certain non-deductible expenses and expected credits.

Note 15. Segments

The Company primarily operates through three business segments, Field Services (FS), Professional Service (PS) and Infrastructure Services (IS). The Field Services segment generates revenue from the installation and service of video programming for both residential and commercial customers under a contract with a subsidiary of AT&T. The Professional Services segment provides customers with design, engineering, construction, deployment, and maintenance of small cell and distributed antenna systems (“DAS”). The Infrastructure Services segment provides maintenance and decommissioning services to wireless networks. During the second quarter we have classified the results of certain assets and liabilities within the IS segment as discontinued operations in our unaudited consolidated statements of operations and comprehensive income (loss) for all periods presented. Additionally, the related assets and liabilities associated the discontinued operations are classified as held for sale in our unaudited consolidated balance sheet. See Note 3 – Discontinued Operations for additional formation.

There were no material intersegment transfers or sales during the periods presented. Selected segment financial information for the three and nine months ended September 30, 2015 and 2016, respectively, is presented below (in thousands):

	Three Months Ended September 30, 2015
	FS		PS		IS			Other		Corporate		Total
Revenues	$	72,299	$	18,760	$	2,879		$	—	$	—	$	93,938
Cost of revenues		59,463		14,385		3,184			—		—		77,032
Gross profit	$	12,836	$	4,375	$	(305	)	$	—	$	—	$	16,906
Selling, general and administrative expenses											18,068		18,068
Restructuring expense											250		250
Impairment expense											—		—
Operating loss													(1,412	)
Interest expense, net											11,053		11,053
Loss before income taxes													(12,465	)
Income tax expense											48		48
Loss from continuing operations												$	(12,513	)

	Three Months Ended September 30, 2016
	FS		PS		IS			Other		Corporate			Total
Revenues	$	83,188	$	17,896	$	3,251		$	—	$	—		$	104,335
Cost of revenues		72,141		15,801		3,439			—		—			91,381
Gross profit	$	11,047	$	2,095	$	(188	)	$	—	$	—		$	12,954
Selling, general and administrative expenses											15,745			15,745
Restructuring expense											221			221
Impairment expense											—			—
Operating loss														(3,012	)
Interest expense, net											11,113			11,113
Loss before income taxes														(14,125	)
Income tax expense											(18,153	)		(18,153	)
Loss from continuing operations													$	4,028

	Nine Months Ended September 30, 2015
	FS		PS		IS		Other		Corporate		Total
Revenues	$	191,514	$	49,164	$	14,257	$	—	$	—	$	254,935
Cost of revenues		156,947		43,736		13,723		—		—		214,406
Gross profit	$	34,567	$	5,428	$	534	$	—	$	—	$	40,529
Selling, general and administrative expenses										59,143		59,143
Restructuring expense										7,892		7,892
Impairment expense										2,142		2,142
Operating loss												(28,648	)
Interest expense, net										32,925		32,925
Loss before income taxes												(61,573	)
Income tax expense										387		387
Loss from continuing operations											$	(61,960	)

	Nine Months Ended September 30, 2016
	FS		PS		IS		Other		Corporate			Total
Revenues	$	234,388	$	42,312	$	5,492	$	—	$	—		$	282,192
Cost of revenues		198,950		36,906		5,350		—		—			241,206
Gross profit	$	35,438	$	5,406	$	142	$	—	$	—		$	40,986
Selling, general and administrative expenses										43,235			43,235
Restructuring expense										1,621			1,621
Impairment expense										8,767			8,767
Operating loss													(12,637	)
Interest expense, net										33,100			33,100
Loss before income taxes													(45,737	)
Income tax expense										(18,087	)		(18,087	)
Loss from continuing operations												$	(27,650	)

Total assets by segment are presented below as of December 31, 2015 and September 30, 2016 (in thousands):

	December 31, 2015
	FS		PS		IS		Assets Held for Sale		Corporate		Total
Total Assets	$	112,103	$	44,825	$	1,614	$	45,880	$	38,352	$	242,774

	September 30, 2016
	FS		PS		IS		Assets Held for Sale		Corporate		Total
Total Assets	$	148,897	$	37,892	$	22,826	$	—	$	43,010	$	252,625

Note 16. Restructuring Activities

During the second quarter of 2014, the Company’s management approved, committed to and initiated plans to implement the 2014 Restructuring Plan. The restructuring costs associated with the 2014 Restructuring Plan are recorded in the restructuring expense line item within the consolidated statements of operations and comprehensive income (loss). The Company incurred a significant portion of the estimated restructuring expenses through the end of 2014.

In connection with the sale of the Company wireless network deployment and wireline business, the Company completed its 2014 Restructuring Plan and approved, committed to and initiated plans to reduce its selling, general and administrative costs in line with the Company’s continuing operations (the 2016 Restructuring Plan).

The following table summarizes the activities associated with restructuring liabilities from December 31, 2015 to September 30, 2016 (in thousands), all of which are included in accrued liabilities in the accompanying consolidated balance sheets. In the table below, “Charges” represents the initial charge related to the restructuring activity, and “Payments” consists of cash payments for severance, employee-related benefits, lease and other contract termination costs, and other restructuring costs.

2016 Restructuring Plan

The table below presents the 2016 restructuring costs.

	Liability at December 31, 2015		Charges		Cash payments and other non-cash transactions			Liability at September 30, 2016
Continuing operations - severance and employee related benefits	$	—	$	415	$	(5	)	$	410
Discontinued operations		—		2,106		(250	)		1,856
Total 2016 Restructuring Plan	$	—	$	2,521	$	(250	)	$	2,266

The following table summarizes the inception to date restructuring costs recognized and the total restructuring costs recognized in the 2016 Restructuring Plan (in thousands):

	As of September 30, 2016
	Total Costs Recognized To Date		Total Expected Program Cost
Severance and employee-related benefits	$	415	$	3,000
Total 2014 Restructuring Plan	$	415	$	3,000

2014 Restructure Plan

The table below presents the 2014 restructuring costs.

	Liability at December 31, 2015		Charges		Cash payments and other non-cash transactions			Liability at September 30, 2016
Continuing Operations - Severance and employee-related benefits	$	5,263	$	1,206	$	(5,135	)	$	1,334
Discontinued Operations		111		1,072	$	(372	)		811
Total 2014 Restructuring Plan	$	5,374	$	2,277	$	(5,506	)	$	2,145

The Company completed its 2014 Restructuring Plan during the second quarter of 2016. The following table summarizes the inception to date restructuring costs recognized and the total restructuring costs recognized in the 2014 Restructuring Plan (in thousands):

	As of September 30, 2016
	Total Costs Recognized To Date		Total Expected Program Cost
Severance and employee-related benefits	$	18,798	$	21,040
Contract termination costs		10		140
Impairment of intangible assets		3,904		3,904
Other restructuring costs		800		(84	)
Total 2014 Restructuring Plan	$	23,512	$	25,000

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The terms “we,” “us” and “our” as used in this Quarterly Report on Form 10-Q, or this Report refer to Goodman Networks Incorporated and its directly and indirectly owned subsidiaries on a consolidated basis; references to “Goodman Networks” or our “Company” refer solely to Goodman Networks Incorporated and references to “Multiband” refer to our subsidiary, Multiband Corporation, which was merged into Goodman Networks in December 2015.

The following discussion and analysis summarizes the significant factors affecting our consolidated operating results, financial condition, liquidity and cash flows as of and for the periods presented below. The following discussion and analysis should be read in conjunction with (i) the accompanying unaudited consolidated financial statements and notes thereto for the three and nine months ended September 30, 2015 and 2016, and with our consolidated financial statements and notes thereto for the year ended December 31, 2015 included in our Annual Report on Form 10-K, the 2015 Annual Report, and (ii) the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the 2015 Annual Report.

Forward-Looking Statements

Certain statements contained in this Report that are not statements of historical fact are forward-looking statements. These forward-looking statements are included throughout this Report, including this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the section titled “Quantitative and Qualitative Disclosures About Market Risk” and relate to matters such as our industry, capital expenditures by wireless carriers and enterprises on telecommunications projects, business strategy, goals and expectations concerning our market position, future operations, revenues, margins, cost savings initiatives, profitability, capital expenditures, liquidity and capital resources and other financial and operating information. Words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “would,” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. We have based these forward-looking statements on our current assumptions, expectations and projections about future events.

Forward-looking statements involve significant risks and uncertainties that could cause the actual results to differ materially from those anticipated in such statements. Most of these factors are outside our control and difficult to predict. Factors that may cause such differences include, but are not limited to:

•

our ability to manage or refinance our substantial level of indebtedness and our ability to generate sufficient cash to service our indebtedness;

•

our reliance on a single customer for a vast majority of our revenues;

•

our ability to maintain a level of service quality satisfactory to this customer across a broad geographic area;

•

our ability to raise additional capital to fund our operations and meet our obligations;

•

our reliance on contracts that do not obligate our customers to undertake work with us and that are cancellable on limited notice;

•

our ability to translate amounts included in our estimated backlog into revenue or profits;

•

our ability to weather economic downturns and the cyclical nature of the telecommunications and subscription television service industries;

•

our ability to maintain our certification as a minority business enterprise;

•

our reliance on subcontractors to perform certain types of services;

•

our ability to maintain proper and effective internal controls;

•

our reliance on a limited number of key personnel who would be difficult to replace;

•

our ability to manage potential credit risk arising from unsecured credit extended to our customers;

•

our ability to compete in our industries; and

•

our ability to adapt to rapid regulatory and technological changes in the telecommunications and subscription television service industries.

For a more detailed discussion of these and other factors that may affect our business and that could cause the actual results to differ materially from those anticipated in these forward-looking statements, see “Risk Factors” in this Report and the 2015 Annual Report. We caution that the foregoing list of factors is not exclusive, and new factors may emerge, or changes to the foregoing factors may occur, that could impact our business. All subsequent written and oral forward-looking statements concerning our business attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements above. We do not undertake any obligation to update any forward-looking statement, whether written or oral, relating to the matters discussed in this Report except to the extent required by applicable securities laws.

Overview

We are a leading provider of installation and maintenance services for satellite communications. We also provide network infrastructure and professional services to the telecommunications industry. We serve the satellite television industry by providing onsite installation, upgrade and maintenance of satellite television systems to both the residential and commercial market customers. Our professional services include the design, engineering, construction, deployment, and maintenance of small cell and distributed antenna systems (“DAS”). Our wireless telecommunications services include the maintenance, and decommissioning of wireless networks for traditional cell towers. These highly specialized and technical services are critical to the capability of our customers to deliver video, data and voice services to their end users.

On July 6, 2016, we completed the sale of the Assets to Dycom pursuant to the terms and conditions of the Agreement, as amended. As consideration for the Assets, Dycom paid the Company approximately $107.5 million, which was subject to a customary working capital adjustment currently estimated to require the Company to pay Dycom $4.7 million, and assumed certain liabilities of the Company. $22.5 million of the proceeds from the sale of the Assets has been deposited into an indemnity escrow account and will be held until certain conditions are fulfilled. We deposited the net proceeds from the sale of the Assets received as of July 6, 2016 in two accounts. $35.0 million of the net proceeds were deposited in an account subject to the control of PNC Bank, National Association (now Midcap Financial Trust) (the “New Credit Facility Account”), and $45.3 million of the net proceeds were deposited into an account subject to the control of the collateral trustee (the “Notes Account”). In connection with the sale of the Assets to Dycom, the Company is precluded from providing certain wireless services in the US and Canada to AT&T and certain small cell services to AT&T in certain geographic areas or wireline services to customers in the telecommunications industry with certain exceptions.

We operate from a broad footprint across the United States. As of September 30, 2016, we employed over 3,600 people and operated in over 40 regional offices and warehouses. We have established long-standing relationships with Tier-1 wireless carriers, original telecommunications equipment manufacturers, or OEMs, and a satellite television service provider, including AT&T and its subsidiaries, AT&T Mobility, LLC, or AT&T Mobility, and Alcatel-Lucent USA Inc., or Alcatel-Lucent, and Sprint/United Management Company, or Sprint. Over the last few years, we have sought to diversify our customer base within the telecommunications industry by leveraging our long-term success and reputation for quality to win new customers such as Century Link, Inc. or Century Link and Verizon Wireless, or Verizon. We generated nearly all of our revenues over the past several years under master service agreements, or MSAs, that establish a framework including pricing and other terms, for providing ongoing services. During 2015, we also provided small cell or DAS services to over 100 enterprises including higher education institutions, stadiums for professional and collegiate sports events, hotels and resorts, major retailers, hospitals, corporations and government agencies.

2014 Restructuring Plan

During 2014, our management approved, committed to and initiated plans to restructure and further improve efficiencies in our operations, or the 2014 Restructuring Plan. As part of the 2014 Restructuring Plan, we have taken steps to (i) further integrate the operations acquired in our acquisition by merger of Multiband, in 2013, and the Custom Solutions Group of Cellular Specialties, Inc., or CSG, a provider of indoor and outdoor DAS and carrier Wi-Fi solutions, services, consultations and maintenance that we acquired in 2013, including elimination of redundant positions and information technology infrastructure to realize acquisition synergies, (ii) exit certain locations to bring our overhead costs in line with our revenue, and (iii) eliminate certain headcount to bring our costs in line with our forecasted demand. The restructuring costs associated with the 2014 Restructuring Plan are recorded in the restructuring expense line item within our consolidated statements of operations and comprehensive income (loss). We incurred a significant portion of the estimated restructuring expenses related to the 2014 Restructuring Plan during 2014. We incurred over $23.0 million of expenses related to the 2014 Restructuring Plan. In connection with the sale of certain assets used in our wireless network deployment and wireline business, we completed our 2014 Restructuring Plan.

2016 Restructuring Plan

In connection with the sale of certain assets used in our former wireless network deployment and wireline business, we approved, committed to and initiated plans to reduce its selling, general and administrative costs in line with our continuing operations, or the 2016 Restructuring Plan. We have incurred over $2.5 million of expenses related to the 2016 Restructuring plan as of September 30, 2016 and anticipate incurring the remainder of the planned $5.0 million of expenses related to the 2016 Restructuring Plan by the end of the first half of the 2017.

Operating Segments

We primarily operate through three business segments: Field Services, Professional Services and Infrastructure Services. Through our Field Services segment, we install, upgrade and maintain satellite television systems for both residential and commercial customers. Through our Professional Services and Infrastructure Services segments, we help wireless carriers and OEMs design, engineer, deploy, integrate, maintain and decommission critical elements of wireless telecommunications networks. Following the sale of our wireless network deployment and wireline businesses during the third quarter of 2016, our business strategy and activity now primarily focus on the Field Services Segment, which generated a 17.7% gross margin for the year ended December 31, 2015.

Field Services. Our Field Services segment provides installation and maintenance services to commercial customers and a provider of internet wireless service primarily to rural markets. We fulfilled over 1.5 million satellite television installations, upgrade or maintenance work orders during each of 2014 and 2015 for a subsidiary of AT&T, representing 28.0% of outsourced work orders for residents of single-family homes for both years. We were the second largest AT&T in-home installation provider in the United States for each of the years ended December 31, 2014 and 2015. In addition to our residential MSA with a subsidiary of AT&T, our MSA to install equipment for multi dwelling unit, or MDU, facilities was extended in 2015 through 2018. The MSA contains an automatic one-year renewal and may be terminated by either party upon a 180 days’ notice. In addition, on January 25, 2016, we signed a one-year agreement with AT&T Services, Inc., or AT&T Services, to provide Digital Life installation and repair services in connection with our DIRECTV satellite television installation services. The contract renews annually but either party has the right to terminate the agreement upon 60 days’ notice.

Professional Services. Our Professional Services segment provides customers with highly technical services primarily related to the design, engineering, integration and performance optimization of transport, or “backhaul,” and core, or “central office,” equipment of enterprise and wireless carrier networks. When a network operator integrates a new element into its live network or performs a network-wide upgrade, a team of in-house engineers from our Professional Services segment can administer the complete network design, equipment compatibility assessments and configuration guidelines, the migration of data traffic onto the new or modified network and the network activation.

Infrastructure Services. Our Infrastructure Services segment provides program management services of field projects necessary to maintain or decommission wireless and wireline networks. On July 6, 2016, the Company completed the sale of Assets within the Infrastructure Services segment to Dycom.

In addition, we provide services related to the engineering and installation of indoor/outdoor small cell and DAS networks. Our enterprise small cell and DAS customers often require most or all of the services listed above and may also purchase consulting, post-deployment monitoring, performance optimization and maintenance services. Demand for DAS services declined in 2015 as DAS infrastructure has largely been built in existing structures, and we completed a majority of our large stadium DAS build-outs in 2015. While a majority of large stadium DAS build-outs are completed, we will continue to refine our small cell and DAS platform services, and intend to focus our efforts to broaden our services with enterprise customers, where we believe there is more opportunity for growth.

Customers

We served over 150 customers in 2015 and the vast majority of our revenues are from subsidiaries of AT&T. Our customer list includes several of the largest carriers and OEMs in the telecommunications industry. Revenues earned from customers other than AT&T were 22.4% and 15.7% of total revenues for the nine months ended September 30, 2015 and 2016, respectively. If our reputation or relationships with this key customer becomes impaired, we could lose future business with this customer, which could materially adversely affect our ability to generate revenue.

AT&T

We provide satellite television installation services for a subsidiary of AT&T. Our relationship with AT&T extends for over 18 years through our relationship with DIRECTV and is essential to the success of our Field Services segment’s operations. We have been named the Home Service Partner (“HSP”) partner of the year for both the 2014 and 2015 fiscal years. We are one of three in-home installation providers that AT&T utilizes in the United States, and during each of the years ended December 31, 2014 and 2015, we performed 28.0% of all AT&T’s outsourced installation, upgrade and maintenance activities. Our contract with AT&T has a term expiring on October 15, 2018, and contains an automatic one-year renewal. The contract may also be terminated by 180 days’ notice by either party. On January 25, 2016, we signed a one-year agreement with AT&T Services to provide Digital Life installation and repair services in connection with our satellite television installation services. The contract renews annually but is terminable upon 60 days’ notice by either party.

Sprint

In May 2012, we entered into a MSA with Sprint to provide decommissioning services for Sprint’s iDEN (push-to-talk) network, or the Sprint Agreement. Pursuant to the Sprint Agreement we are removing equipment from Sprint’s network that is no longer in use and restoring sites to their original condition. The Sprint Agreement has an initial term of five years, and automatically renews on a monthly basis thereafter unless notice of non-renewal is provided by either party. Through December 31, 2014, we completed iDEN decommissioning work of over 11,400 cell sites under the Sprint Agreement. During 2015, we started providing radio frequency engineering services to Sprint and on October 2, 2015, we received a project award to decommission Sprint’s WIMAX network for certain regions. We have established a strong performance record with Sprint, and we continue to grow and evolve our relationship with Sprint.

Alcatel-Lucent

On July 15, 2014, we entered into a three-year MSA with Alcatel-Lucent, effective as of June 30, 2014, or the Alcatel-Lucent Contract. Pursuant to the Alcatel-Lucent Contract, we provide, upon request, certain services, including deployment engineering, integration engineering, radio frequency engineering and other support services to Alcatel-Lucent for their GSM networks. We have experienced a decline in the amount of legacy work that we have performed for Alcatel-Lucent, and we expect this decline to continue as GSM networks go end-of-life. Following the completion of the merger between Nokia and Alcatel-Lucent on January 4, 2016, we are also seeking to obtain work from Nokia on newer technologies. The Alcatel-Lucent Contract has an initial term ending June 30, 2017, after which the parties may mutually agree to extend the term on a yearly basis.

Enterprise Customers

We provide services to enterprise customers through our Professional Services segment. These service offerings consist of the design, installation and maintenance of DAS/Small Cell systems to customers such as Fortune 500 companies, hotels, hospitals, college campuses, airports and sports stadiums.

Key Components of Operating Results

The following is a discussion of key line items included in our unaudited consolidated financial statements for the periods presented below under the heading “Results of Operations.” We utilize revenues, gross profit, net income and earnings before interest, income taxes, depreciation and amortization, or EBITDA, as significant performance indicators.

Estimated Backlog

We refer to the amount of revenue we expect to recognize over the next 18 months from future work on uncompleted contracts, including MSAs and work we expect to be assigned to us under MSAs, and based on historical levels of work under such MSAs and new contractual agreements on which work has not begun, as our “estimated backlog.” We determine the amount of estimated backlog for work under MSAs based on historical trends, anticipated seasonal impacts and estimates of customer demand based upon communications with our customers. The table below presents our 18-month estimated backlog by reportable segment as of the period indicated below. The estimated backlog presented below excludes revenue related to discontinued operations:

	September 30, 2015		September 30, 2016
	(In millions)
Segments
Field Services	$	440.7	$	481.5
Professional Services		137.8		76.7
Infrastructure Services		75.2		87.4
Total estimated backlog	$	653.7	$	645.6

We expect to recognize approximately 20% of our estimated backlog over the next three months ending December 31, 2016. The vast majority of estimated backlog as of September 30, 2016 originated from multi-year customer relationships, primarily with AT&T. Because we use the completed contract method of accounting for revenues and expenses from our DAS contracts, our estimated backlog includes revenue related to projects that we have begun but not completed performance.

While our estimated backlog includes amounts under MSAs and other service agreements, our customers are generally not contractually committed to purchase a minimum amount of services under these agreements, most of which can be cancelled on short or no advance notice. Therefore, our estimates concerning customers’ requirements may not be accurate. The timing of revenues for construction and installation projects included in our estimated backlog can be subject to change as a result of customer delays, regulatory requirements and other project related factors that may delay completion. Changes in timing could cause estimated revenues to be realized in periods later than originally expected, or not at all. Consequently, our estimated backlog as of any date is not a reliable indicator of our future revenues and earnings.

Revenues

Our revenues are generated primarily from projects performed under MSAs, and other service agreements, which are generally multi-year agreements. The remainder of our work is generated pursuant to contracts for specific projects or jobs that require the construction or installation of an entire infrastructure system or specified units within an infrastructure system. Revenue from non-recurring, project specific work may experience greater variability than master service agreement work due to the need to replace the revenue as projects are completed. Our MSAs generally contain customer-specified service requirements, such as discrete pricing for individual tasks as well as various other terms depending on the nature of the services provided, and typically provide for termination upon short or no advance notice.

Our revenues fluctuate as a result of the timing of the completion of our projects and changes in the capital expenditure and maintenance budgets of our customers, which may be affected by overall economic conditions, consumer demands on telecommunications and satellite television providers, the introduction of new technologies, the physical maintenance needs of our customers’ infrastructure and the actions of the government, including the Federal Communications Commission and state agencies.

Our Field Services segment revenues are primarily from the installation and maintenance services of subsidiaries of AT&T’s video programming systems for residents of single family homes through work order fulfillment under a MSA. In January 2016, our Field Services segment began providing Digital Life installation and repair services in connection with our satellite television installation services under a one year MSA. The contract renews annually but either party has the right to terminate the agreement upon 60 days’ notice. The Field Services segment also installs and maintains satellite internet services through a contract with ViaSat, Inc.

Our Professional Services segment revenues are derived from wireless and wireline services through engineers who specialize in network architecture, transformation, reliability and performance. Our Professional Services segment revenues are primarily from the design and installation of DAS.

Our Infrastructure Services segment revenues are derived from project management of decommissioning services. The vast majority of the revenues we earn in our Infrastructure Services segment are from our Sprint WIMAX decommissioning project which we were awarded during October 2015.

The following table presents our gross deferred project revenue and deferred project cost balances as of December 31, 2015 and September 30, 2016, which have been presented net on a project basis in the accompanying unaudited consolidated financial statements (in thousands):

	December 31, 2015			September 30, 2016
Deferred project revenue (gross)	$	(14,909	)		(8,145	)
Deferred project cost (gross)		15,407			10,433
Net deferred project cost	$	498		$	2,288

Goodman Networks Inc 10-Q/A