“We spent $8 million on building the infrastructure that accounts for our losses in 2013, but once that starts to be productive, we anticipate significantly higher growth by the third quarter of 2014,” Garry McGuire, CEO of RMG Networks , told me Monday morning following release of RMG Networks Holding Corporation’s Q4 and full year financial reports.
“We’re now really bullish since we’ve made so many investments, including doubling our sales force with 50 new sales hires and doubling our international offices,” said McGuire. “We are already seeing sales momentum in the south east Asia and China markets, based on 2013 investments.”
RMG’s total 2013 pro forma revenues were $72.9 million, an increase of 5% from pro forma revenues of $69.3 million in 2012. Pro forma operating loss was $15.4 million compared to pro forma profit of $0.7 million in 2012. Pro forma adjusted EBITDA loss was $1.9 million compared to pro forma profit of $9.2 million in 2012.
Q4 2013 revenues were $22.5 million, an increase of 6% from $21.2 million of pro forma combined revenues in the fourth quarter of 2012.
RMG Networks completed the business combinations of Reach Media Group Holdings, Inc. and Symon Holdings Corporationon April 8 and April 19, 2013, respectively. Because Symon recorded results of operations on a January 31 fiscal year and because the results of Reach Media Group Holdings Inc. are not included in Predecessor Company financials, Q4 2013 results as-reported are not comparable with the Predecessor Company’s results for fourth quarter 2012.
Since ‘as-reported’ results include certain one-time items and the effects of purchase accounting conventions, “both of which we do not believe reflect the underlying performance of our business,” said McGuire, “the company, for ease of comparison, provided, in the results, pro forma combined adjusted results for the 2013 and 2012 fourth quarters as if the companies had existed as a combined entity for the relevant periods and adjusting for the items described above.
“During the second half of 2013, we acted to extend our market leadership through an aggressive approximately $8 to 9 million investment program which reduced near-term profitability but enabled us to construct a platform of personnel, products and systems on which to drive what we believe will be significant current and future year growth,” McGuire said in the company’s formal announcement.
Among other points in the formal announcement were that RMG launched additional solutions for digital internal communications and visual supply chain during the year and recently announced announced two new advertising partnerships with Etihad Airways  and OnAir , significantly increasing its media inventory.
McGuire said, “RMG’s fourth quarter was a very strong finish to a complex year of formation, integration and investment. During the second half of 2013, we acted to extend our market leadership through an aggressive approximately $8 to 9 million investment program which reduced near-term profitability but enabled us to construct a platform of personnel, products and systems on which to drive what we believe will be significant current and future year growth.
“We also further validated our unique proposition offering comprehensive place-based video network solutions globally with the launch of our RMG Office Network and winning several sizable geographic cross-sell contracts from existing Enterprise customers. As a further example of our momentum, Q4 saw an almost seven times increase in the volume of large-sized contract wins versus Q4 2012.”
Among other points:
- Media revenue, comprised primarily of advertising revenue, of $6.4 million increased 6% from $6.0 million in fourth quarter 2012 primarily due to the sale of a greater volume of advertising inventory.
- Enterprise revenue of $16.1 million increased 6% from $15.2 million in fourth quarter 2012 primarily due to an increase in professional services revenue.
- On a sequential basis, fourth quarter revenues increased 37% from $16.4 million in the third quarter of 2013. Media revenue, comprised primarily of advertising revenue, increased 48% to $6.4 million from $4.3 million in the third quarter due to improved sales force productivity and as a result of normal advertising expenditure seasonality, which resulted in sequential gross margin improvement to 36% from 22%.
- Enterprise revenues increased 33% to $16.1 million from $12.1 million in the third quarter, due to additional sales resources and increased sales force productivity; gross margin was comparable in both periods.
- Re Fourth Quarter Operating loss and Adjusted EBITDA: Pro forma operating loss was $3.9 million compared to pro forma operating income of $2.4 million in the fourth quarter of 2012. This increased loss is attributable to lower advertising gross margin as a percentage of sales in the current year period, higher operational expenses in the current year period as the company invests in new sales and marketing staff to support growth initiatives and due to approximately $2.6 million of additional depreciation, amortization and stock-based compensation expense.
- Adjusted EBITDA loss was $0.5 million compared to profit of $3.4 million in the fourth quarter of 2012, decreasing for the reasons described above.
- On a sequential basis, Adjusted EBITDA loss improved in the fourth quarter from a loss of $1.4 million in the third quarter primarily due to higher revenues and improved gross margins.
RMG Networks helps brands and organizations communicate more effectively using location-based video networks. The company connects brands with target audiences using video advertising networks comprised of over 200,000 display screens, reaching over 100 million consumers each month. The company also builds enterprise video networks that empower organizations to visualize critical data to better run their business.