RMG Networks Reports Q2 Results

RMG Networks announced its results for the second quarter ended June 30, 2013.

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

•Acquired and substantially integrated Symon Communications
•Combined and reorganized these management teams
•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, said, "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 reputation with large-enterprise customers, our solutions offerings, and our track record, 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 the second quarter 2013 results as reported are not comparable with the predecessor company's results for second quarter 2012. Therefore, for ease of comparison, the following results and tables contain 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.

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 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