Q2 2014 @RMGNetworks Call Highlights

Our North American Gail Chiasson has already written a piece on the RMG Networks Q2 2014 results ^[1] but here in brief are some of the highlights (we think) from the actual call itself…

• It looks like they have taken as much medicine in one go as they can
• USD 14m – non-recurring losses made up of; a USD 7.2M writeoff on Media (USD 1.3 million and USD 5.9 million related to goodwill and intangible assets), USD 6.2M loss accrual charge on a long-term contract resulting from a revised forecast of the revenue associated with the contract (this can only be the Regus deal), USD 0.6 million in costs related to the departure of the company’s former CEO and a reorganization of certain business operations
• One of the adjustments was the offset to revenue on the Regus deal ^[2] / re-classification of the USD 3.8M in revenue from Enterprise Sale to Media Cost of Sales
• Media Margin now down to 13.3%
• 12% Interest rate on Debt. USD 12M in Debt total now.
• Interestingly. ABSOLUTELY no analyst questions at all?
• We are guessing that the impairment charge is a write-off of Akoo.

NOTE that we are guessing on Regus (what else can it be?) but there is a clue under Legal, we quote “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 USD 500,000”.

So it’s likely that they have reserved USD 500K for legal, and the accrual must be related. They also took a USD 4.1M loss charge in COGS (cost of goods sold) on the P&L – perhaps POSSIBLY reversing out the up front money they charged Regus for deployment (which we think is USD 3.8m) – again perhaps doing all this cos’ they know they are screwed?

As we said in our ‘August Statement ^[3]‘ the new CEO Bob Michelson (who BTW, already seems to be winning friends, and getting to know the industry) has his work cut out going forward.