RMG Networks released its Q1, 2014, results Thursday morning, and its stock prices immediately fell, lowering from $3.30 close on Wednesday to 97 cents by close on Thursday.
And, following the release of the Q1 results, we noted that by mid-afternoon Thursday, more than 1.5 million shares had changed hands – dwarfing the average volume of 10,815.
It seems that no matter that the company is forecasting that sales investments it made in the second half of 2013 will drive accelerated second half 2014 revenue and that the company will achieve 20+% year-over-year adjusted revenue growth, apparently what mattered to investors was the here and now.
Nevertheless, here are some of the facts of Q1:
First quarter consolidated revenue was $12.6 million, on an adjusted basis comprised of $10.1 million in adjusted Enterprise revenue and $2.5 million in Media revenue. This $12.6 million is a decrease of 16% from $15.0 million of pro forma combined revenues in the first quarter of 2013.
This adjusted Enterprise revenue of $10.1 million increased 7% from $9.4 million in the first quarter of 2013, due to continued sales momentum from expanded sales teams and geographic presence. Adjusted Enterprise gross margin was 57.5% compared to 60.0% in the first quarter of 2013, decreasing year over year due to sales mix but increasing sequentially from the 50.9% demonstrated in the fourth quarter of 2013.
The Media revenue of $2.5 million decreased 54% from $5.6 million in the first quarter of 2013, primarily due to soft demand in the out-of-home advertising sector, as has been reported by other out-of-home advertising companies. The softness experienced in the first quarter resulted from, among other items, a shift in advertising dollars to Olympic broadcast TV coverage. Adjusted Media gross margin was 16.8% compared to 31.0% in the first quarter of 2013, due primarily to significantly lower revenue failing to cover fixed costs of sales. The company says that it expects full year media gross margins to normalize as sales increase above fixed costs in future quarters and first quarter shortfalls are recovered.
Garry McGuire, CEO, says, “RMG Networks marked a number of significant achievements in Q1 as we continue to execute our long term plan. First quarter financial results were mixed, in some part due to macro trends. However, the early successes of our 2013 growth investments that we saw begin in late 2013 persisted into Q1 and are continuing into Q2.
“In our Enterprise business, our offices in new and newly expanded geographies are delivering positive results, our newly expanded sales force is gaining traction and our cross-selling initiatives are paying off in incremental deals from existing customers across geographies and across product solutions.
“Though recognized revenues were down in our Media unit for the quarter, we booked a 20%+ increase in new contracts in the quarter versus last year, booked our first media contracts in Europe, recognized the first revenues on our Office Network and announced advertising partnerships with two new international airline partners.
“With 2014 off to a promising start, we remain focused on driving execution and generating returns on our growth investments. RMG Networks has built a platform of personnel, products and solutions designed to advance our market leadership and the unique value proposition of offering comprehensive place-based video networks. The traction we are gaining reinforces our confidence in our strategy. RMG Networks is focused on executing on our mission to be the global leader in intelligent visual communications.”
During the first quarter, RMG had launched its enhanced Visual Supply Chain solution expanding suite of visual communications solutions; had completed installation of the RMG Office Network and generated initial network revenues; had generated initial EMEA advertising bookings and added two EMEA airline partnerships with Etihad Airways and OnAir.
Further, its south East Asia and China regions generated initial Enterprise revenues, while Middle East continued strong growth. And cross-selling initiatives continued to gain traction with two global customers signing contracts spanning multiple geographies.
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.
RMG Networks completed the business combinations of Reach Media Group Holdings Inc. and Symon Holdings Corporation, or Symon, on April 8 and April 19, 2013, respectively.
Further details note that, on a sequential basis, adjusted revenues decreased as expected in the first quarter to $12.6 million from $22.5 million in the fourth quarter of 2013, consistent with historical seasonality in the business.
Adjusted operating loss was $8.3 million compared to pro forma operating loss of $2.6 million in the first quarter of 2013. This increased loss is attributable to lower advertising revenue and gross margin in the current year period, higher operating expenses in the current year period resulting from investments made during the second half of 2013 in new sales and marketing personnel to support growth initiatives and approximately $2.1 million of additional depreciation, amortization and stock-based compensation expense. Adjusted EBITDA loss was $5.3 million compared to pro forma combined adjusted EBITDA loss of $0.8 million in the first quarter of 2013, decreasing for the reasons described above.