RMG Networks Blog

Reports Fourth Quarter Adjusted Revenue(1) Growth of 32% With Stable Adjusted Gross Margins and Improved Adjusted EBITDA Compared to Prior Quarter

DALLAS, TX — (Marketwired) — 03/31/15 —

RMG Networks Holding Corporation (NASDAQ: RMGN)

Fourth Quarter Highlights

  • Total adjusted revenue1 of $18.6 million increased 32% from the third quarter 2014
  • Adjusted EBITDA loss1 of $1.3 million represented a $0.9 million improvement from the third quarter 2014
  • Brought to market the first product of ‘Six New Products in Six Months’ initiative
  • Subsequent to year-end and as previously disclosed, issued $25 million in convertible preferred stock; offering was comprised of $15 million to convert entire senior debt facility and $10 million of new gross cash proceeds
  • Subsequent to year-end and as previously disclosed, entered into a non-binding letter of intent to sell Airline Media Networks business

RMG Networks Holding Corporation (NASDAQ: RMGN), or RMG Networks, a leading provider of technology-driven visual communications solutions, today announced its financial results for the fourth quarter and full year ended December 31, 2014.

RMG Networks helps brands and organizations communicate more effectively using location-based video networks. The company 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.

Robert Michelson, Chief Executive Officer, commented, “We executed well in the fourth quarter and are encouraged by our progress, as adjusted revenues grew significantly and adjusted EBITDA improved compared to the prior quarter. During the fourth quarter, we advanced a number of focused initiatives to drive new product innovation, strengthen our sales organization and enhance operational efficiency, while redirecting investments to areas of our business where we have a highly differentiated offering driving competitive advantage.”

“In December, we began executing on an aggressive six month innovation plan to introduce one new solution a month into the market, in order to strengthen our portfolio of products,” Mr. Michelson continued. “Our efforts remain on track and our sales pipeline2 is stronger today than it was one year ago as a result. We have also made strides with our sales organization to streamline and align sales goals across the organization.”

“The recently completed financing transaction and the announcement of the proposed sale of our Airline Media Network business are two additional important steps that significantly strengthen our balance sheet, enabling us to continue funding our growth initiatives. The sale of the Airline Media network will allow us to focus our attention on our Enterprise business. In addition, we believe the capital we just raised, along with the other strategic and operational initiatives we are pursuing, will allow us to achieve our ultimate goal of sustainable profitability.”

Mr. Michelson further added, “While it will still take some time for the effect of these organizational changes to impact our financial results, we are encouraged to be adding larger, more substantial deals to our pipeline2 from existing customers as well as a number of potential opportunities tied to new customers. As an organization, we are making progress to rejuvenate growth and are on a path to achieve our ultimate goal of long-term sustainable profitability.”

Fourth Quarter Financial Review

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. Symon was determined to be the Predecessor Company for accounting purposes and accordingly Symon’s historical financials are included for comparison in RMG Networks’ “as-reported” financials. 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, full year 2014 results as-reported are not comparable with the Predecessor Company’s results for the full year 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. Therefore, for ease of comparison, the following provides adjusted results for the full year 2014 and pro forma combined results for the full year 2013 as if the companies had existed as a combined entity for the relevant periods and adjusting for the items described above.

Adjusted Results3,4
Fourth Quarter Revenue. Total adjusted revenues in the fourth quarter of 2014 were $18.6 million, a sequential increase of 32.0% from$14.1 million in the third quarter of 2014.

  • Adjusted Enterprise revenue of $13.1 million increased 24.4% from $10.6 million in the third quarter of 2014, driven by an increase in product sales and professional services delivered. Adjusted gross margin increased to 53.7% from 52.7% in the third quarter of 2014.
  • Media revenue of $5.5 million increased 54.4% from $3.6 million in the third quarter of 2014, primarily due to better sales execution and seasonal advertising trends. Gross margin improved to 23.3% from 21.9% in the third quarter of 2014.

On a year over year basis, total adjusted revenues in the fourth quarter of 2014 represented a decrease of 17.2% from $22.5 millionof adjusted revenues in the fourth quarter of 2013.

  • Adjusted Enterprise revenue decreased 18.6% from $16.1 million in the fourth quarter of 2013. Adjusted Enterprise gross margin was 53.7% compared to 50.9% in the fourth quarter of 2013.
  • Media revenue decreased 13.8% from $6.4 million in the fourth quarter of 2013. Media gross margin was 23.3% compared to 36.1% in the fourth quarter of 2013.

Fourth Quarter Adjusted EBITDA3. Adjusted EBITDA loss was $1.3 million, improving from a loss of $2.2 million in the third quarter of 2014, due primarily to the reasons described above.

On a year over year basis, adjusted EBITDA decreased in the fourth quarter from an adjusted EBITDA loss of $0.5 million in the fourth quarter of 2013, due to the reasons described above.

During the fourth quarter of 2014, the company recorded the following non-recurring, non-cash items:

  • A $1.0 million write-off of obsolete inventory.
  • An additional $1.4 million accrual on a previously recognized loss accrual on a long-term contract, initially recorded in the second quarter of 2014. Based on revised estimates for the performance of the contract over its term, the loss is now expected to be greater than previously estimated.
  • Impairment charges of $20.8 million and $5.9 million related to goodwill and intangible assets, respectively, of the Enterprise Unit. The impairments are a result of a more conservative near-term forecast versus previous forecasts based off the strategies pursued by the company’s new leadership. It does not reflect management’s view of the long-term value of the company’s Enterprise business unit.

Full Year. Total 2014 adjusted revenues5 were $61.8 million, a decrease of 15.2% from total pro forma combined revenues of $72.9 million in 2013. 2014 adjusted EBITDA loss was $11.6 million compared to a pro forma combined adjusted EBITDA loss of $1.9 million in 2013.

Reported Results
Fourth Quarter. Total reported revenue for the quarter ended December 31, 2014 was $18.4 million compared to total reported revenue of $19.6 million for the same quarter last year.

Operating loss for the quarter ended December 31, 2014 was $32.5 million compared to an operating loss of $6.7 million for the same quarter last year.

Full Year. Total reported revenue for the year ended December 31, 2014 was $57.5 million compared to total revenue for the successor company for the period from April 20, 2013 through December 31, 2013 of $50.3.

Operating loss for the year ended December 31, 2014 was $79.2 million compared to an operating loss for the successor company for the period from April 20, 2013 through December 31, 2013 of $14.6 million.

Non-Binding LOI to Sell the Airline Media Network Business

RMG Networks announced on March 19, 2015, that it has entered into discussions with certain unaffiliated third parties regarding the proposed sale of its Media business, also known as the RMG Airline Media Network. The contemplated sale does not include the RMG Office Media Network.

As a result of these discussions, RMG Networks has signed a non-binding letter of intent to sell its RMG Airline Media Network business for $5.5 million, plus the assumption of certain liabilities to an unaffiliated third party. The parties are in the process of negotiating a definitive agreement.

Issuance of Series A Convertible Preferred Stock

RMG Networks announced on March 25, 2015, the sale of $25 million in Series A Convertible Preferred Stock (the “Preferred Stock”) to institutional and accredited investors (the “Financing”). The Financing closed on March 27, 2015. The Financing was comprised of$15 million from the full conversion of the company’s existing senior debt facility and approximately $10 million in new capital, prior to the payment of fees and other transaction expenses. With the conversion of its senior credit facility, the company is debt free, with the exception of capital leases.

The Financing included 250,000 shares of Preferred Stock that are mandatorily convertible into 25,000,000 shares of RMG Networks common stock, reflecting an effective transaction price of $1.00 per common share. The Preferred Stock is mandatorily convertible upon an affirmative shareholder vote approving the conversion. The company expects to file a proxy statement with the Securities and Exchange Commission (“SEC”) for such purpose in the coming days and has received support agreements committing to vote in favor of approving the conversion from investors representing approximately 45% of common shares outstanding.

The Preferred Stock does not pay dividends unless the company fails to hold a meeting of its stockholders to approve the conversion of the preferred stock within 60 days of closing the Financing (or within 75 days of closing the Financing in the case of SEC review of the proxy statement for such meeting) at which point dividends begin accruing at a rate of 1% per month or portion thereof. The company is required to file a registration statement with the SEC for the common shares underlying the Preferred Stock within 30 days of closing the Financing. The Financing also carries other terms and conditions representative of a transaction of this type, the full description of which can be reviewed in documents attached to the company’s filing with the SEC on Form 8-K.

The Preferred Stock was offered and sold in a private placement pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Regulation D promulgated there under. The securities sold in the Financing have not been registered under the Securities Act, or state securities laws and may not be offered or sold in the United States absent registration with the SEC or an applicable exemption from such registration requirements.

Roth Capital Partners served as the sole placement agent for the Financing.

Business Outlook

“In the first quarter, we expect typical seasonal patterns to impact our business,” continued Mr. Michelson. “However, with our focused sales strategy and innovative new products gaining traction in the market, we are confident our growing pipeline will drive long-term growth, and that in time, we will return to delivering the financial and operational performance our shareholders expect. We have in front of us numerous, specific opportunities to deliver accelerated growth in the second half of 2015 and are committed to executing on them. With many of these initiatives in early stages, the visibility into the exact timing of their impact is still not clear. As such, we believe it would be premature to provide specific, near-term guidance at this time. As we execute on our planned product development and sales enhancement programs, we remain optimistic about our prospects for revenue growth and developing material operating leverage to produce significant adjusted EBITDA over the intermediate- and long-term to become self-sustaining.”

Conference Call

Management will host a conference call to discuss these results today, Tuesday, March 31, 2015 at 9 a.m. ET. To access the call, please dial (866) 953-6856 (toll free) or (617) 399-3480 and passcode #81394350. The conference call will also be broadcast live over the Internet with an accompanying slide presentation, which can be accessed via the Investor Relations section of RMG Networks’web site at http://ir.rmgnetworks.com/phoenix.zhtml?c=251935&p=irol-calendar. All participants should call or access the website approximately 10 minutes before the conference begins. The webcast and slide presentation will be available for replay for 90 days.

A telephonic replay of this conference call will also be available by dialing (888) 286-8010 (toll free) or (617) 801-6888 (passcode: 58029439) from 1 p.m. ET on Tuesday, March 31, 2015 until midnight ET on April 7, 2015

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