RMG Year-End Financials Show $14M Operating Loss, But Sales Gains

March 31, 2014 by Dave Haynes

RMG Networks Holding Corporation has announced its  financials for Q4 and also for 2013, showing a big operating loss, but suggest at least in the narrative that things are heading in the right direction.

It’s complicated because the reporting looks at the periods both before RMGN blended in Symon and listed on the stock market, and since then. But since then, “operating loss for the successor company for the period from April 20, 2013 through December 31, 2013 was $14.6 million compared to operating income from the predecessor company for the year ended January 31, 2013 of $5.4 million.”

The company reports, however, that sales on both the media and enterprise communications side of the business are up 6% over a year ago and 37% from Q3 to Q4.

Because of the complications of how this needs to get reported in year one, and my making damn sure I didn’t take accounting in school, I’ll leave the reporting to the press release and you can decode how one of the most visible and active companies in this sector, at the moment, is doing:

Highlights

— Fourth quarter revenue(1) of $22.5 million; full year revenue(1) of $72.9 million, in line with outlook

— Early sales momentum in SE Asia and China markets, based on 2013 investments

— Continued investment in sales generating resources with 16 additional new sales hires in Q4, totaling approximately 50 new sales hires in 2013

— Launched additional solutions for digital internal communications and visual supply chain

— Further reduced debt to $8 million at year end; amended credit facility for operational flexibility

— Launched previously announced RMG Office Network and, subsequent to quarter end, announced two new advertising partnerships with Etihad Airways and OnAir, significantly increasing media inventory

RMG Networks Holding Corporation RMGN +0.35% , or RMG Networks, today announced its financial results for the fourth quarter and year ended December 31, 2013.

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.

Garry McGuire, Chief Executive Officer, commented, “RMG’s fourth quarter was a very strong finish to a complex year of formation, integration and investment. We achieved revenue and gross margin increases in part because of our growth initiatives, proving out our investment strategy for the business. 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 began to derive early tangible results from these revenue-generating investments in Q4 by earning our first revenues from the SE Asia and China regions while growing our customer base in existing markets. 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.”

“The positive momentum from these investments is progressing and we will continue to support them in 2014,” Mr. McGuire continued. “This year, we have already expanded our market-leading airline media business into international markets and secured our first EMEA advertising partnerships, selling advertising for Etihad Airways, the national airline of the U.A.E, and OnAir, the global provider of in-flight connectivity. Our Enterprise business launched our comprehensive visual supply chain offering and will continue to launch innovative new products throughout 2014. We expect revenue growth and EBITDA generation to begin to accelerate at mid-year 2014 as our recently-expanded sales force begins to reach traditional productivity levels. We remain focused on executing on our mission to be the global leader in intelligent visual communications.”

Fourth Quarter and 2013 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 not included in Predecessor Company financials, fourth quarter 2013 results as-reported are not comparable with the Predecessor Company’s results for fourth quarter 2012. In addition, our “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. Therefore, for ease of comparison, we provide, in the following 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.

Pro Forma Combined Adjusted Results Fourth Quarter Revenue. Total fourth quarter 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.

        --  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.

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.

Full Year. 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.

Reported Results Fourth Quarter. Total reported revenue for the quarter ended December 31, 2013 was $19.6 million; total revenue for the predecessor company for the quarter ended January 31, 2013 was $15.2 million.

Operating loss for the quarter ended December 31, 2013 was $6.7 million; operating income for the predecessor company for the quarter ended January 31, 2012 was $2.7 million.

Full Year. Total revenue for the successor company for the period from April 20, 2013 through December 31, 2013 was $50.3 million compared to revenue from the predecessor company for the year ended January 31, 2013 of $42.5 million.

Operating loss for the successor company for the period from April 20, 2013 through December 31, 2013 was $14.6 million compared to operating income from the predecessor company for the year ended January 31, 2013 of $5.4 million.