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RMG Networks Reports Second Quarter 2013 Results

Pro Forma Combined Total Revenues of $18.9 Million Grew 14% From Same Period 2012; Pro Forma Combined Core Revenues Increased 22% From Same Period 2012; Subsequent Equity Raise Strengthens Balance Sheet and Diversifies Shareholder Base

DALLAS, TX -- (Marketwired) -- 08/14/13 -- RMG Networks Holding Corporation, or RMG Networks, (NASDAQ: RMGN) a leading provider of Digital Out-of-Home Advertising Media and Digital Signage technology, announced its results for the second quarter ended June 30, 2013.

Recent Accomplishments

Over the past quarter, RMG Networks has completed the following actions:

  • Acquired and substantially integrated Symon Communications, creating a market leader in digital signage visual communications solutions for advertising and enterprise applications
  • Combined and reorganized these management teams, creating a public-company and growth-ready executive team and corporate infrastructure
  • Laid groundwork for international expansion by establishing presence in SE Asia and Latin America
  • Pro forma combined total and core revenues increased 14% and 22%, respectively, from Q2 2012
  • Completed, on August 2, 2013, a $40 million follow-on offering of common stock to repay debt, fund growth initiatives and fund strategic acquisitions

Garry McGuire, CEO of RMG Networks, commented, "During the quarter, RMG acquired and integrated a significant acquisition, creating a market leader that is taking advantage of the explosive growth in digital video and the shift from traditional media to digital media. We also completed a $40M follow-on offering. Amid this transformation, RMG recorded, on a pro forma combined basis, strong second quarter revenue growth, demonstrating the operating performance inherent in our business units even before most of our growth initiatives have begun to hit full effectiveness."

Mr. McGuire concluded, "RMG's second half year priorities focus on capturing cross-selling opportunities between our two divisions, adding new ad inventory and inventory partners, and expanding our geographic and vertical market presences. With our existing global footprint, our exceptional reputation with large-enterprise customers, our comprehensive and customizable solutions offerings, and our strong track record of success, our mission is to be the leader in the marketplace through organic growth, to be the consolidator of a fragmented industry, and to deliver increasing profitability."

Second Quarter 2013 Review

RMG Networks completed the business combinations of Reach Media Group Holdings Group, 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 our second quarter 2013 results as reported are not comparable with the predecessor company's results for second quarter 2012. Therefore, for ease of comparison, we are providing in the following results and tables pro forma combined results for the 2013 and 2012 second quarters as if the companies had existed as a combined entity for the relevant periods.

Pro Forma Combined Results
Total second quarter 2013 revenues were $18.9 million, an increase of 14% from $16.6 million in the second quarter of 2012. Included in 2012 revenue was $1.1 million of non-recurring software development revenue. Excluding this revenue from the prior period, second quarter 2013 revenue increased 22%.

  • Advertising revenue of $6.9 million increased 23% from $5.6 million in second quarter 2012 due to increased demand from advertisers embracing video ad platforms.
  • Product sales revenue of $5.3 million increased 35% from $3.9 million second quarter 2012 due to increasing demand from businesses looking to utilize digital signage in their workplace.
  • Maintenance and content services revenue of $4.1 million remained relatively flat from $4.2 million in second quarter 2012.
  • Professional services revenue of $2.6 million decreased 9% from $2.8 million in second quarter 2012. The abovementioned $1.1 million in non-recurring software development revenue is included in the year ago revenue figure. Excluding this amount, professional services revenue increased 49% due to greater services provided in connection with product sales.

Operating loss was $4.5 million compared to operating income of $0.9 million in the second quarter of 2012. This decrease is attributable to: lower gross margin as a percentage of sales in the current year period, resulting from lower sales of our high margin proprietary software; the inclusion of $4.0 million in acquisition-related costs in the quarter; increases in sales and marketing expenses as the company invests in new sales and marketing staff to support our growth initiatives, and higher R&D expense.

Adjusted EBITDA was $0.8 million compared to $1.7 million in the second quarter of 2012; the decrease was driven by the change in product mix and the sales and marketing investments, as mentioned above.

Reported Results
Total revenue for the successor company from April 20, 2013 through June 30, 2013 was $15.0 million; for RMG Networks from April 1, 2013 through April 19, 2013 was $1.8 million; and for the Predecessor Company from April 1, 2013 through April 19, 2013 was $1.4 million. This compares to Predecessor Company's total revenue from May 1, 2013 through July 31, 2012 of $9.5 million.

Operating loss for the successor company from April 20, 2013 through June 30, 2013, was $2.9 million; for RMG Networks from April 1, 2013 through April 19, 2013 was $2.5 million; and for the Predecessor Company from April 1, 2013 through April 19, 2013 was $3.1 million. This compares to Predecessor Company's operating income from May 1, 2013 through July 31, 2012 of $1.0 million.

2013 and 2014 Outlook

RMG Networks anticipates 2013 revenue to be in the range of $76 million to $78 million compared to $68.2 million in 2012, and Adjusted EBITDA in the range of $5 million to $6 million compared to $7.5 million in 2012; the decrease in 2013 Adjusted EBITDA reflects, as the company has previously disclosed, integration costs and the company's investment in growth initiatives. For 2014, RMG Networks is anticipating revenue in the range of $105 million to $110 million and Adjusted EBITDA in the range of $16 million to $18 million.

Conference Call

Management will host a conference call to discuss these results today, Wednesday August 14, 2013 at 10:00 a.m. ET. To access the call, please dial 888-679-8033 (toll free) or 617-213-4846 and passcode # 82356311. The conference call will also be broadcast live over the Internet, which can be accessed via the Investor Relations section of RMG's web site at http://ir.rmgnetworks.com/phoenix.zhtml?c=251935&p=irol-calendar. The Company has elected not to provide a slide presentation to accompany this quarter's call and webcast. All participants should call or access the website approximately 10 minutes before the conference begins. The webcast 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: 79272126) from noon ET on August 14, 2013 until midnight ET on August 24, 2013.

NASDAQ Listing

As a result of RMG Network's recent follow-on offering, RMG Networks now satisfies the NASDAQ's initial listing requirement that it have more than 300 round-lot shareholders. Accordingly, on August 13, RMG Networks received a letter from NASDAQ, indicating that RMG Networks is in compliance with applicable listing standards, and that the delisting notification that RMG Networks previously received is now closed.

ABOUT RMG NETWORKS

RMG Networks (NASDAQ: RMGN) is a global leader in the digital signage media industry. The company delivers digital signage media solutions for corporate networks, consumer networks, and advertising networks, including solutions for 70% of the Fortune 500. RMG operates an Advertising Media business unit that sells digital video advertising across a network of over 200,000 display screens, reaching 100 million consumers each month. RMG also operates an Enterprise Solutions business unit that provides digital signage data visualization solutions for a variety of application areas including contact centers, supply chain, employee communications, hospitality, higher education, financial services, healthcare and retail. The company is headquartered in Dallas, Texas with offices in the United States, United Kingdom, China, India and the U.A.E. For more information, visit www.RMGNetworks.com.

Non-GAAP FINANCIAL MEASURES

This release includes certain non-GAAP financial measures as defined under SEC regulations, including Adjusted EBITDA. In evaluating its business, RMG Networks considers and uses Adjusted EBITDA as a supplemental measure of its operating performance, and believes that many of the company's investors use this non-GAAP measure to monitor the company's performance. This measure should not be considered as a substitute for the most directly comparable GAAP measures and should not be used in isolation, but in conjunction with these GAAP measures. Definitions and reconciliations between non-GAAP measures and relevant GAAP measures are set forth in the tables at the end of this press release.

FORWARD LOOKING STATEMENT

This press release contains "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as: "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "estimate," "expect," "strategy," "future," "likely," "may," "should," "will" and similar references to future periods. Examples of forward-looking statements include, among others, statements we make regarding guidance relating to future financial performance, expected operating results, such as revenue growth, and efforts to grow our business.

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following: the company's success in retaining or recruiting, or changes required in, its management and other key personnel; the potential de-listing of the company's common stock from the Nasdaq Capital Market; the potential liquidity and trading of the company's securities; Reach Media Group's ("RMG") history of incurring significant net losses and limited operating history; the competitive environment in the advertising markets in which the company operates; the risk that the anticipated benefits of the combination of RMG or Symon Holdings Corporation, or of other acquisitions that the company may complete, may not be fully realized; the risk that any projections, including earnings, revenues, margins or any other financial items are not realized; changing legislation and regulatory environments; business development activities, including the company's ability to contract with, and retain, customers on attractive terms; the general volatility of the market price of the company's common stock; risks and costs associated with regulation of corporate governance and disclosure standards (including pursuant to Section 404 of the Sarbanes-Oxley Act); and general economic conditions.

Any forward-looking statement made by us in this press release is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.


                      RMG Networks Holding Corporation
                         Consolidated Balance Sheets


                                                  Successor     Predecessor
                                                   Company       Company
                                                   June 30,     January 31,
                                                     2013          2013
                                                 ------------  ------------
Assets                                            (Unaudited)
Current assets:
  Cash and cash equivalents                      $  5,979,263  $ 10,203,169
    Accounts receivable, net                       15,918,023     9,061,229
    Inventory, net                                  3,552,407     2,988,766
    Deferred tax assets                               231,383       372,618
    Other current assets                              882,866       686,099
                                                 ------------  ------------
Total current assets                               26,563,942    23,311,881
Restricted cash                                        80,000             0
Property and equipment, net                         1,518,608       963,069
Intangible assets, net                             38,624,863     2,584,443
Goodwill                                           31,037,564    10,972,547
Loan Origination fees                                 932,550             0
Other assets                                          288,004       112,054
                                                 ------------  ------------
Total assets                                     $ 99,045,531  $ 37,943,994
                                                 ============  ============

Liabilities and Stockholders' equity
Current liabilities:
    Accounts payable                             $  5,099,667  $  4,150,730
    Accrued liabilities                             4,035,271     1,925,901
    Revenue share liabilities                       3,167,458             0
    Note payable - current                          2,400,000             0
    Deferred revenue                                6,726,859    10,438,487
    Capital leases                                     72,022             0
                                                 ------------  ------------
Total current liabilities                          21,501,277    16,515,118
Notes payable - non current                        31,060,000             0
Warrant liability                                  10,453,334             0
Deferred revenue - non current                        785,693     1,073,223
Deferred tax liabilities                            7,046,832       704,496
Deferred rent                                         227,504             0
Capital leases and other                              553,482             0
                                                 ------------  ------------
Total liabilities                                  71,628,122    18,292,837
                                                 ------------  ------------

Commitment and Contingencies

Stockholders' equity:
  Common stock, $.0001 par value, (250,000,000
   shares authorized;6,285,583 shares issued and
   outstanding at June 30, 2013)                          629             0
  Common stock - Class L, $0.01 par value,
   (1,000,000 shares authorized, issued and
   outstanding at January 31, 2013)                         0        10,000
  Common stock - Class A Non-voting, $0.01 par
   value, (200,000 shares authorized, 68,889
   shares issued and outstanding at January 31,
   2013 and 2012)                                           0           689
  Additional paid-in capital                       34,623,035    10,149,643
  Accumulated comprehensive income (loss)              13,157       (38,940)
  Notes receivable - restricted stock                       0      (207,025)
  Retained earnings (accumulated deficit)          (7,219,412)    9,736,790
                                                 ------------  ------------
Total stockholders' equity                         27,417,409    19,651,157
                                                 ------------  ------------
Total liabilities and stockholders' equity       $ 99,045,531  $ 37,943,994
                                                 ============  ============





                      RMG Networks Holding Corporation
               Consolidated Statements of Comprehensive Income
                                 (Unaudited)

                          Successor                Predecessor  Predecessor
                           Company        RMG        Company      Company
                           April 20    January 1    February 1   February 1
                           Through      Through      Through      Through
                           June 30,    April 19,    April 19,     July 31,
                             2013         2013         2013         2012
                         -----------  -----------  -----------  -----------
Revenue:
  Advertising            $ 5,556,557  $ 1,661,245  $         -  $         -
  Products                 5,069,160            -    2,239,236    7,554,343
  Maintenance and
   content services        2,572,555            -    3,594,520    8,375,245
  Professional services    1,851,755      116,272    1,323,559    2,961,393
                         -----------  -----------  -----------  -----------
Total Revenue             15,050,027    1,777,517    7,157,315   18,880,981

Cost of Revenue:
  Advertising              3,355,883      890,789            -            -
  Products                 3,261,492            -    1,498,135    4,295,494
  Maintenance and
   content services          572,433            -      611,692    1,435,208
  Professional services    1,197,304            -      861,640    2,012,481
                         -----------  -----------  -----------  -----------
Total Cost of Revenue      8,387,112      890,789    2,971,467    7,743,183
                         -----------  -----------  -----------  -----------
Gross Profit               6,662,915      886,728    4,185,848   11,137,798
                         -----------  -----------  -----------  -----------

Operating expenses:
  Sales and marketing      3,351,286      454,381    1,729,871    3,676,490
  General and
   administrative          2,585,983      157,626    1,739,348    3,741,025
  Research and
   development               806,401       89,923      512,985    1,023,521
  Acquisition expenses     1,485,566    4,629,505    3,143,251            -
  Depreciation and
   amortization            1,292,276        8,139      140,293      651,362
                         -----------  -----------  -----------  -----------
Total operating expenses   9,521,512    5,339,574    7,265,748    9,092,398
                         -----------  -----------  -----------  -----------
Operating income (loss)   (2,858,597)  (4,452,845)  (3,079,900)   2,045,400
Other Income (Expense):
  Warrant liability
   expense                (3,920,000)  (2,733,334)           -            -
  Interest expense and
   other - net              (495,880)     (29,986)     (14,553)     (56,135)
                         -----------  -----------  -----------  -----------
Income (loss) before
 income taxes             (7,274,477)  (7,216,166)  (3,094,453)   1,989,265
Income tax expense                 -            -     (540,897)     641,527
                         -----------  -----------  -----------  -----------
Net income (loss)         (7,274,477)  (7,216,166)  (2,553,556)   1,347,738
Other comprehensive
 income (loss) - Foreign
 currency translation
 adjustments                  13,157            -     (121,144)      49,450
                         -----------  -----------  -----------  -----------
Total comprehensive
 income (Loss)           $(7,261,320) $(7,216,166) $(2,674,700) $ 1,397,188
                         ===========  ===========  ===========  ===========

   Net income (loss) per
   share:
Basic and dilutive net
 income (loss) per share
 of Common Stock         $     (1.16) $     (2.31)
                         ===========  ===========  ===========  ===========
Basic and dilutive net
 income (loss) per share
 of Class L Common Stock                           $     (2.55) $      1.35
                         ===========  ===========  ===========  ===========
  Basic and dilutive net
   income (loss) per
   share of Class A Non-
   Voting Common Stock   $         -  $         -  $         -
                         ===========  ===========  ===========  ===========
  Weighted average
   shares used in
   computing basic and
   dilutive net income
   (loss) per share of
   Common Stock            6,285,583    3,124,252
                         ===========  ===========  ===========  ===========
  Weighted average
   shares used in
   computing basic and
   dilutive net income
   (loss) per share of
   Class L Common Stock                              1,000,000    1,000,000
                         ===========  ===========  ===========  ===========
  Weighted average
   shares used in
   computing basic and
   dilutive net income
   (loss) per share of
   Class A Non-Voting
   Common Stock                                         68,889       82,778
                         ===========  ===========  ===========  ===========





                      RMG Networks Holding Corporation
                    Consolidated Statements of Cash Flows
                   For The Six Months Ended June 30, 2013
                                 (Unaudited)

                         Successor                 Predecessor  Predecessor
                          Company         RMG        Company      Company
                          April 20    January 1     February 1   February 1
                          Through      through       Through      Through
                          June 30,     April 30,    April 19,     July 31,
                            2013         2013          2013         2012
                        -----------  ------------  -----------  -----------

Cash flows from
 operating activities
  Net income (loss)     $(7,274,477) $ (7,216,106) $(2,553,556) $ 1,347,738
    Adjustments to
     reconcile net
     income (loss) to
     net cash provided
     by operating
     activities:
    Change in warrant
     liability            3,920,000     2,733,334            -            -
    Non-cash stock
     issuance                     -     2,200,000            -            -
    Cancellation of
     non-cash stock
     issuance                     -    (1,200,000)           -            -
  Interest capitalized
   as debt                   60,000             -            -            -
    Depreciation and
     amortization         1,292,276         8,139      140,293      651,362
    Deferred tax
     provision
     (benefit)                    -             -      (12,294)     (88,087)
    Other non-cash
     expense (income),
     net                          -             -       (2,054)      (4,590)
    Changes in
     operating assets
     and liabilities:
      Accounts
       receivable        (4,412,699)     (335,961)   2,846,332      936,316
      Inventory             (74,919)            -     (488,722)     747,248
      Other current
       assets               211,440       (38,929)    (154,529)      76,503
      Other assets, net      (1,073)            -       12,572       38,241
      Accounts payable    1,708,576        45,078   (2,978,808)  (1,034,322)
      Accrued
       liabilities          362,830      (265,198)    (765,937)     136,008
      Deferred revenue      330,532             -     (372,579)     (55,387)
                        -----------  ------------  -----------  -----------

Net cash provided by
 operating activities    (3,877,514)   (4,163,231)  (4,329,282)   2,751,020
                        -----------  ------------  -----------  -----------

Cash flows from
 investing activities
    Acquisition of
     Reach Media Group
     Holdings, Inc.               -   (21,010,000)           -            -
    Acquisition of
     Symon Holdings
     Corporation           (209,079)  (43,476,749)           -            -
    Purchases of
     property and
     equipment             (172,244)            -      (86,470)    (205,272)
                        -----------  ------------  -----------  -----------
Net cash used in
 investing activities      (381,323)  (64,486,749)     (86,470)    (205,272)
                        -----------  ------------  -----------  -----------





                      RMG Networks Holding Corporation
                    Consolidated Statements of Cash Flows
                   For The Six Months Ended June 30, 2013
                                 (Unaudited)
                                 (Continued)



                        Successor                  Predecessor   Predecessor
                         Company         RMG         Company       Company
                        April 20     January 1     February 1    February 1
                         Through      through        Through       Through
                        June 30,      April 30,     April 19,     July 31,
                          2013          2013          2013          2012
                      ------------  ------------  ------------  ------------


Cash flows from
 financing activities
    Proceeds from
     Trust Account               -    80,010,661             -             -
    Payment for
     public shares
     tendered                    -   (45,512,280)            -             -
    Proceeds from
     debt                        -    34,000,000             -             -
    Proceeds from
     stock issuance              -     5,000,000             -             -
    Proceeds from
     sponsor notes
     payable                     -       635,000             -             -
    Payment of
     sponsor note
     payable                     -      (295,000)            -             -
    Payment of
     stockholder note
     payable                     -      (200,000)            -             -
    Loan origination
     fees                        -      (980,000)            -             -
    Repayments of
     debt                 (600,000)            -             -             -
                      ------------  ------------  ------------  ------------
Net cash used in
 financing activities     (600,000)   72,658,381             -             -
                      ------------  ------------  ------------  ------------

Effect of exchange
 rate changes on cash       13,157             -      (121,144)       49,450

Net increase
 (decrease) in cash
 and cash equivalents   (4,845,680)    4,008,401    (4,536,896)    2,595,198

Cash and cash
 equivalents,
 beginning of period    10,824,943     1,150,269    10,203,169     3,836,691
                      ------------  ------------  ------------  ------------

Cash and cash
 equivalents, end of
 period               $  5,979,263  $  5,158,670  $  5,666,273  $  6,431,889
                      ============  ============  ============  ============

Supplemental
 disclosures of cash
 flow information:
  Cash paid during
   the year for
   interest           $          0  $          0  $      2,053  $      7,236
  Cash paid during
   the year for
   income taxes       $          0  $          0  $    150,000  $    234,000
  Deferred
   Underwriters' fees $          0  $    500,000  $          0  $          0



                      RMG Networks Holding Corporation
                  Pro-Forma Calculation of Adjusted EBITDA

                                                           2nd Quarter
                                                        2013        2012
                                                     ----------  ----------

Reconciliation of Operating Income (Loss) to Adjusted EBITDA -

Operating Income (Loss)                              (5,192,227)   (521,852)
Add:
Depreciation and amortization                         1,342,689   1,491,784
Acquisition expenses *                                4,013,757           0

Revenues that would have been recognized during the
 period had the balance in deferred revenue at the
 acquisition date not been required to be to be
 adjusted to market value at the acquisition date in
 accordance with GAAP purchase accounting guidelines    675,000     700,000
                                                     ----------  ----------

  Adjusted EBITDA                                       839,219   1,669,932
                                                     ==========  ==========


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Contact:
For RMG Networks Holding Corporation
Investor
Carolyn M. Capaccio
212-838-3777
Email Contact

or

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TallGrass Public Relations
Shawn Roberts
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