DailyDOOH

Gail Chiasson, North American Editor

Under Robert Michelson, interim president and interim CEO, Dallas-based RMG Networks announced its second quarter results ending June 30, 2014, showing consolidated revenue of $16.4 million, a sequential increase of 29.9% from $12.6 million in the first quarter of 2014.

This was made from consolidated adjusted revenue comprised of $11.5 million in adjusted Enterprise revenue and $4.9 million in Media revenue.

Further, adjusted EBITDA loss of $2.8 million represented a $2.6 million improvement from the first quarter 2014.

The company announced that during Q2, it won the largest Enterprise software sale in company history, with over 27,000 software licenses to an unnamed Tier 1 telecom provider, and that it had completed reallocation of corporate resources that streamlined the business and is expected to reduce ongoing operating expense levels.

Subsequent to quarter-end, it also had amended the Senior Credit facility, adding $3.4 million in net cash proceeds to the balance sheet and eliminated financial covenants until at least mid-year 2015.

As our regular readers know, RMG Networks builds enterprise video networks that empower organizations to visualize critical data to better run their business. The company also connects brands with target audiences using video advertising networks comprised of over 200,000 display screens, reaching over 100 million consumers each month.

Michelson, who joined the company only two weeks ago, said that he was attracted to RMG “by the strength of its growth platform as well as the truly differentiated solutions that offer customers a proprietary value proposition. As a growth-focused CEO, I see in RMG Networks an exciting opportunity to expand our leadership and put the company firmly on a profitable growth trajectory.

“Our second quarter results demonstrate sequential growth in revenue and gross margin in both units as sales execution improved and that costs were strictly controlled,” Michelson said. “We are focused on continuing to deliver sequential growth through the second half of the year. We refocusing our efforts on a limited number of strategic initiatives in key industries, products and solutions and plan to pursue our investments in a measured manner. We are managing the business with the goal of achieving profitable growth by measuring our performance against a refined set of benchmarked metrics.

“Finally, we will maintain clarity in our communications to all audiences through consistency and transparency. With momentum building in the business, refocused execution, and a bolstered balance sheet, we are prepared to achieve the company’s growth potential and long-term strategic objectives.”

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. Because Symon recorded results of operations on a January 31 fiscal year and because the results of Reach Media Group Holdings, Inc. are included in Predecessor Company financials only as of the date of combination, second quarter 2014 results as-reported are not comparable with the results for Q2 2013. In addition, ‘as-reported’ results include certain items and the effects of purchase accounting which RMG Networks does not believe reflect the underlying performance of its business. However, for ease of comparison, the adjusted results for the second quarter of 2014 and pro forma combined results for the second quarter of 2013 are reported as if the companies had existed as a combined entity for the relevant periods and adjusted for the items described above.

The adjusted Enterprise revenue of $11.5 million increased 14.4% from $10.1 million in the first quarter of 2014, driven by an increase in product sales. Adjusted gross margin improved to 58.9% from 57.5% in the first quarter of 2014, due to a favorable product mix driven by the large software sale.

Media revenue of $4.9 million increased 91.3% from $2.5 million in the first quarter of 2014, due to a rebound in advertising demand and better sales execution. Adjusted gross margin improved to 13.8% from (16.8)% in the first quarter of 2014, due to increased revenue generation.

On a year over year basis, total adjusted revenues in Q2 2014 represented a decrease of 13.3% from $18.9 million of pro forma combined revenues in the second quarter of 2013.

Adjusted Enterprise revenue decreased 3.8% from $12.0 million in thQ2 2013, due to a slight decrease in product sales and professional services. Adjusted Enterprise gross margin was 58.9% compared to 54.2% in Q2 2013, increasing year over year due to a favorable sales mix resulting from the large software sale in Q2 2014.

Media revenue decreased 29.6% from $6.9 million in Q2 2013, primarily due to continued headwinds in the out-of-home advertising sector. Adjusted Media gross margin was 13.8% compared to 38.6% in the second quarter of 2013, due primarily to lower revenue generation failing to cover fixed costs of sales.

During the second quarter of 2014, the company incurred approximately $14.0 million in non-recurring charges comprised of the following:

• Impairment charges of $1.3 million and $5.9 million related to goodwill and intangible assets, respectively, (non-specified) within the Media Unit;
• A $6.2 million loss accrual charge on a long-term contract, resulting from a revised forecast of the revenue associated with the contract;
• Approximately $0.6 million in costs related to the departure of the company’s former CEO (Garry McGuire) and a reorganization of certain business operations.

RMG Networks is not presently involved in any legal proceeding in which the outcome, if determined adversely to the company, would be expected to have a material adverse effect on its business, operating results, or financial condition. Regardless of the outcome, however, litigation can have an adverse impact on the company because of defense and settlement costs, diversion of management resources, and other factors. The currently expected financial impact of ongoing legal proceedings is reflected in accruals in costs of revenues and in a reserve for legal expenses which was accrued in the second quarter of 2013 in the amount of $500,000.

For the remainder of 2014, RMG Networks expects to see continued sequential quarterly adjusted revenue increases with sequential reductions in quarterly cash operating expenses, resulting in sequential quarterly Adjusted EBITDA increases. Over the long term, given the leadership positions the company holds in the growing industries in which its competes, the company continues to strongly believe in its prospects for generating revenue growth, for developing material operating leverage and for producing significant adjusted EBITDA.

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