RMG Networks Reports First Quarter 2014 Results

DALLAS, TX--(Marketwired - May 8, 2014) - RMG Networks Holding Corporation (NASDAQ: RMGN)

Quarter Highlights

• First quarter consolidated revenue of $12.6 million, on an adjusted basis^1,2, comprised of $10.1 million in adjusted Enterprise revenue^1,2 and $2.5 million in Media revenue

• Launched enhanced Visual Supply Chain solution expanding suite of visual communications solutions

• Completed installation of the RMG Office Network and generated initial network revenues

• Generated initial EMEA advertising bookings and added two EMEA airline partnerships with Etihad Airways and OnAir

• South East Asia and China regions generated initial Enterprise revenues; Middle East continued strong growth

• Cross-selling initiatives continued to gain traction with two global customers signing contracts spanning multiple geographies

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 first quarter ended March 31, 2014.

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 Networks marked a number of significant achievements in Q1 as we continue to execute our long term plan. First quarter financial results were mixed, in some part due to macro trends. However, the early successes of our 2013 growth investments that we saw begin in late 2013 persisted into Q1 and are continuing into Q2. In our Enterprise business, our offices in new and newly expanded geographies are delivering positive results, our newly expanded sales force is gaining traction and our cross-selling initiatives are paying off in incremental deals from existing customers across geographies and across product solutions. Though recognized revenues were down in our Media unit for the quarter, we booked a 20%+ increase in new contracts in the quarter versus last year, booked our first media contracts in Europe, recognized the first revenues on our Office Network and announced advertising partnerships with two new international airline partners."

"With 2014 off to a promising start, we remain focused on driving execution and generating returns on our growth investments. RMG Networks has built a platform of personnel, products and solutions designed to advance our market leadership and the unique value proposition of offering comprehensive place-based video networks. The traction we are gaining reinforces our confidence in our strategy. We expect Q2 revenue to build toward a strong sequential increase and for accelerated revenue growth and EBITDA generation to begin at mid-year 2014 as our recently-expanded sales force begins to reach productivity. RMG Networks is focused on executing on our mission to be the global leader in intelligent visual communications."

First 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, first quarter 2014 results as-reported are not comparable with the Predecessor Company's results for first quarter 2013. In addition, our "as-reported" results include certain items and the effects of purchase accounting which we do not believe reflect the underlying performance of our business. Therefore, for ease of comparison, we provide, in the following results, adjusted results for the 2014 first quarter and pro forma combined results for the 2013 first quarter as if the companies had existed as a combined entity for the relevant periods and adjusting for the items described above.

Adjusted and Pro Forma Combined Results(3)
First Quarter Revenue. Total first quarter adjusted 2014 revenues were $12.6 million, a decrease of 16% from $15.0 million of pro forma combined revenues in the first quarter of 2013.

• Adjusted Enterprise revenue of $10.1 million increased 7% from $9.4 million in the first quarter of 2013, due to continued sales momentum from expanded sales teams and geographic presence. Adjusted Enterprise gross margin was 57.5% compared to 60.0% in the first quarter of 2013, decreasing year over year due to sales mix but increasing sequentially from the 50.9% demonstrated in the fourth quarter of 2013.

• Media revenue of $2.5 million decreased 54% from $5.6 million in the first quarter of 2013, primarily due to soft demand in the out-of-home advertising sector, as has been reported by other out-of-home advertising companies. The softness experienced in the first quarter resulted from, among other items, a shift in advertising dollars to Olympic broadcast TV coverage. Adjusted Media gross margin was (16.8)% compared to 31.0% in the first quarter of 2013, due primarily to significantly lower revenue failing to cover fixed costs of sales. We expect full year media gross margins to normalize as sales increase above our fixed costs in future quarters and first quarter shortfalls are recovered.

On a sequential basis, adjusted revenues decreased as expected in the first quarter to $12.6 million from $22.5 million in the fourth quarter of 2013, consistent with historical seasonality in the business.

First Quarter Operating loss and Adjusted EBITDA. Adjusted operating loss was $8.3 million compared to pro forma operating loss of $2.6 million in the first quarter of 2013. This increased loss is attributable to lower advertising revenue and gross margin in the current year period, higher operating expenses in the current year period resulting from investments made during the second half of 2013 in new sales and marketing personnel to support growth initiatives and approximately $2.1 million of additional depreciation, amortization and stock-based compensation expense.

Adjusted EBITDA loss was $5.3 million compared to pro forma combined adjusted EBITDA loss of $0.8 million in the first quarter of 2013, decreasing for the reasons described above.

Reported Results
First Quarter. Total reported revenue for the quarter ended March 31, 2014 was $11.8 million; total revenue for the predecessor company for the period from February 1 to April 19, 2013 was $7.2 million.

Operating loss for the quarter ended March 31, 2014 was $8.5 million; operating income for the predecessor company for the period from February 1 to April 19, 2013 was $3.1 million.

Growth Outlook

Though the company expects to see some continued near term weakness in the out-of-home advertising market, we continue to expect that the sales investments we made in the second half of 2013 will drive accelerated second half 2014 revenue and that we will achieve 20+% year-over-year adjusted revenue growth. Revenue growth will lead to increasing operating leverage and the company expects to generate positive adjusted EBITDA for the full year 2014.

Conference Call

Management will host a conference call to discuss these results today, Thursday, May 8, 2014 at 9:00 a.m. ET.

To access the call, please dial 866-271-5140 (toll free) or 617-213-8893 and passcode # 11531526. 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:65336145) from 1:00 p.m. ET on May 8, 2014 until midnight ET on May 12, 2014.

About RMG Networks

RMG Networks (NASDAQ: RMGN) 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. RMG Networks works with over 70% of the Fortune 100. The company is headquartered in Dallas, Texas with offices in the United States, United Kingdom, China, India, Singapore, Brazil and the U.A.E. For more information, visit http://www.rmgnetworks.com.

About 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.

Cautionary Note Regarding Forward Looking Statements

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 limited liquidity and trading volume 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.

¹ 2014 adjusted results; 2013 pro forma combined results; Enterprise revenues represent Products, Maintenance and Content Services, and Professional Services revenue line items; Media revenues represent Advertising revenue line item.

² On an "as-reported" basis for Q1 2014, Enterprise revenue of $9.2 million decreased 2%, versus Q1 2013 pro forma combined results, and total revenue was $11.8 million. 2014 adjusted results include a $209,913 add back to Enterprise revenue for the effects of purchase accounting as well as a $639,042 reclassification of a GAAP charge in Product revenue to Advertising cost of sales.

³ 2014 adjusted results; 2013 pro forma combined results; Enterprise revenues represent Products, Maintenance and Content Services, and Professional Services revenue line items; Media revenues represent Advertising revenue line item.

RMG Networks Holding Corporation
Consolidated Balance Sheets
March 31, 2014 and December 31, 2013
			March 31, 2014				December 31, 2013
			(Unaudited)
Assets
Current assets:
	Cash and cash equivalents		$	4,761,726			$	8,235,566
	Accounts receivable, net			14,796,364				22,731,678
	Inventory, net			4,304,405				4,633,213
	Deferred tax assets			53,934				63,617
	Other current assets			1,957,129				2,224,547
Total current assets				25,873,558				37,888,621
Property and equipment, net				4,453,077				3,548,985
Intangible assets, net				37,122,000				38,782,000
Goodwill				29,299,514				28,673,156
Loan origination fees				914,565				971,726
Other assets				344,102				496,879
Total assets			$	98,006,816			$	110,361,367
Liabilities and Stockholders' equity
Current liabilities:
	Accounts payable		$	4,629,780			$	8,009,380
	Revenue share liabilities			1,074,943				2,595,614
	Accrued liabilities			3,627,807				4,423,896
	Deferred revenue			10,472,602				10,074,420
	Capital leases and other			86,228				117,710
Total current liabilities				19,891,360				25,221,020
Notes payable - non current				8,000,000				8,000,000
Warrant liability				6,754,103				4,573,123
Deferred revenue - non current				1,011,777				990,989
Deferred tax liabilities				6,013,079				6,430,853
Capital leases and other				404,075				392,558
Total liabilities				42,074,394				45,608,543
Commitment and Contingencies
Stockholders' equity:
	Common stock, $.0001 par value, (250,000,000 shares authorized; 12,367,756 and 11,920,583 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively)			1,237				1,192
	Additional paid-in capital			81,058,915				77,452,317
	Accumulated comprehensive income			304,224				299,618
	Retained earnings (accumulated deficit)			(25,431,954	)			(13,000,303	)
Total stockholders' equity				55,932,422				64,752,824
Total liabilities and stockholders' equity			$	98,006,816			$	110,361,367

See accompanying notes to consolidated financial statements.

RMG Networks Holding Corporation
Consolidated Statements of Comprehensive Income (Loss)
For The Three Months Ended March 31, 2014 and The Period February 1 Through April 19, 2013
				Successor Company Three Months Ended March 31, 2014				Predecessor Company February 1, 2013 Through April 19, 2013
				(Unaudited)
Revenue:
	Advertising			$	2,546,091			$	-
	Products				2,287,747				2,239,236
	Maintenance and content services				4,302,725				3,594,520
	Professional services				2,638,566				1,323,559
Total Revenue					11,775,129				7,157,315
Cost of Revenue:
	Advertising				2,335,743				-
	Products				1,909,923				1,498,135
	Maintenance and content services				760,146				611,692
	Professional services				1,609,830				861,640
Total Cost of Revenue					6,615,642				2,971,467
Gross Profit					5,159,487				4,185,848
Operating expenses:
	Sales and marketing				5,233,280				1,729,871
	General and administrative				5,405,768				1,739,348
	Research and development				1,091,926				512,985
	Acquisition expenses				-				3,143,251
	Depreciation and amortization				1,920,033				140,293
Total operating expenses					13,651,007				7,265,748
Operating income (loss)					(8,491,520	)			(3,079,900	)
Other Income (Expense):
	Warrant liability expense				(4,641,471	)			-
	Interest expense and other - net				(248,739	)			(14,553	)
Income (loss) before income taxes					(13,381,730	)			(3,094,453	)
Income tax expense (benefit)					(950,079	)			(540,897	)
Net income (loss)					(12,431,651	)			(2,553,556	)
Other comprehensive income -
	Foreign currency translation adjustments				4,606				(121,144	)
Total comprehensive income (loss)				$	(12,427,045	)		$	(2,674,700	)
		Net income (loss) per share:
	Basic and diluted net income (loss) per share of Common Stock			$	(1.04	)			-
Basic and diluted net income (loss) per share of Class L Common Stock					-			$	(2.55	)
	Weighted average shares used in computing basic and diluted net income (loss) per share of Common Stock				11,952,172				-
	Weighted average shares used in computing basic and diluted net income (loss) per share of Class L Common Stock				-				1,000,000
	Weighted average shares used in computing basic and diluted net income (loss) per share of Class A Non-Voting Common Stock				-				68,889

RMG Networks Holding Corporation
Pro Forma Consolidated Statements of Operations
			First Quarter
			2014			2013
Revenues -
Advertising			2,546,091			5,592,874
Product sales			2,926,789			3,415,497
Maintenance and content services			4,512,638			4,082,034
Professional services			2,638,566			1,924,499
	Total		12,624,084			15,014,904
Cost of Revenues -
Advertising			2,974,785			3,856,742
Product sales			1,909,923			1,962,789
Maintenance and content services			760,146			683,299
Professional services			1,609,830			1,124,341
	Total		7,254,684			7,627,171
Gross Profit			5,369,400			7,387,733
Operating Expenses			13,651,007			9,952,510
Operating Income (Loss)			(8,281,607	)		(2,564,777	)

RMG Networks Holding Corporation
Consolidated Statements of Cash Flows
For The Three Months Ended March 31, 2014 and The Period February 1 through April 19, 2013
				Successor Company Three Months Ended March 31, 2014				Predecessor Company February 1, 2013 Through April 19, 2013
				(Unaudited)
Cash flows from operating activities
	Net income (loss)			$	(12,431,651	)		$	(2,553,556	)
		Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization					1,920,033				140,293
Change in warrant liability					4,641,471				-
Stock-based compensation					1,029,688				-
Non-cash loan origination fees					57,161				-
Non-cash consulting expense					144,750				-
Non-cash directors' fees					116,464				-
Deferred tax (benefit)					(950,081	)			(12,294	)
Changes in operating assets and liabilities:
	Accounts receivable				7,935,314				2,846,332
	Inventory				328,808				(488,722	)
	Other current assets				267,418				(154,529	)
	Other assets, net				8,027				12,572
	Accounts payable				(3,379,598	)			(2,978,808	)
	Accrued liabilities				(2,421,096	)			(767,991	)
	Deferred revenue				418,971				(372,579	)
Net cash provided by (used in) operating activities					(2,314,321	)			(4,329,282	)
Cash flows from investing activities
Purchases of property and equipment					(1,164,125	)			(86,470	)
Net cash provided by (used in) investing activities					(1,164,125	)			(86,470	)
Cash flows from financing activities					-				-
Effect of exchange rate changes on cash					4,606				(121,144	)
Net increase (decrease) in cash and cash equivalents					(3,473,840	)			(4,536,896	)
Cash and cash equivalents, beginning of period					8,235,566				10,203,169
Cash and cash equivalents, end of period				$	4,761,726			$	5,666,273
Supplemental disclosures of cash flow information:
		Cash paid during the period for interest		$	100,480			$	2,053
		Cash paid during the period for income taxes		$	-			$	150,000

RMG Networks Holding Corporation
Reconciliation of Operating Loss to Adjusted EBITDA
			First Quarter
			2014			2013
Operating income (loss) per Statement of Comprehensive Income			(8,491,520	)		(3,079,900	)
Predecessor Company operating loss for the period April 1 through April 19, 2013						3,018,415
Predecessor Company operating loss for the period January 1 through January 31, 2013						(59,788	)
Reach Media Group Holdings Corporation operating loss for the period January 1 through March 31, 2013						(2,443,504	)
Revenues that would have been recognized in the period had the balance in deferred revenue at the acquisition date not been required to be adjusted to market value at the acquisition date in accordance with GAAP purchase accounting guidelines			209,913
Pro-Forma Operating Income (Loss)			(8,281,607	)		(2,564,777	)
Depreciation and amortization			1,920,033			815,032
Acquisition expenses			0			904,108
Stock-based compensation			1,029,688			0
	Adjusted EBITDA		(5,331,886	)		(845,637	)