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RMG Reports Second Quarter 2017 Results

Achieves Year-over-Year Revenue Growth for the Second Consecutive Quarter
Narrowed Net Loss; Achieves Positive Quarterly Adj. EBITDA

Second Quarter Highlights

  • Total revenues of $9.1 million increased 4% year-over-year

  • Net loss of $1.2 million; Adj. EBITDA1 of $52,000

  • Signed $530,000 contract to expand an existing customer’s interactive digital signage solution into two new facilities in the Middle East

  • Subsequent to quarter-end, made significant advancements in the technology roadmap with a new release of the core enterprise software as well as reaching key milestones toward the release of a next-generation software platform

DALLAS, Aug. 03, 2017 (GLOBE NEWSWIRE) -- RMG Networks Holding Corporation (NASDAQ:RMGN), or RMG, a global leader in technology-driven visual communications, today announced its financial results for the second quarter ended June 30, 2017.

"This was a quarter of continued progress highlighted by year-over-year revenue growth for the second consecutive quarter and positive Adjusted EBITDA for the third time in the last four quarters,” commented Robert Michelson, Chief Executive Officer. “In addition to advancing growth initiatives within our core markets, we continue to advance our technology roadmap, which we believe can significantly expand RMG’s addressable market and position us to increase revenue growth over time.”

“Our revenues during the second quarter benefited from strong product sales and a favorable sales mix, which drove high gross margins,” Michelson added. “Geographically, we continued to see positive signs, particularly in the Middle East where we closed a $530,000 contract with an existing customer to expand its interactive digital signage solution.”

“We are very pleased with our innovation and technology progress during the second quarter and expect to achieve two major milestones in the third quarter. The first achievement is an upgrade to our core enterprise software, which greatly enhances security, performance and scalability for our largest, most data intensive customers, Michelson noted. “Additionally, we have made substantial progress on our next-generation technology platform, which we have begun testing with major customers and believe will allow us to greatly expand our market reach as we move into 2018.”

Second Quarter Financial Review

Total revenue of $9.1 million increased 4% from $8.7 million in the second quarter of 2016.

  • Products revenue of $3.9 million increased 26% from $3.1 million in the same period last year, resulting primarily from increased proprietary hardware sales.

  • Maintenance & content services revenue of $3.4 million declined 4% from $3.5 million in the same period last year, resulting primarily from lower renewals in the United Kingdom and European regions.

  • Professional services revenue of $1.9 million decreased 13% from $2.1 million in the same period last year, resulting primarily from the mix of professional services on new orders closed during the quarter.

1 A non-GAAP measure, we define Adj. EBITDA as net income (loss) with adjustments for interest expense and other income, income tax expense, gain (loss) on change in warrant liability, gain (loss) from discontinued operations, depreciation and amortization expenses and stock-based compensation expense. See “About Non-GAAP Financial Measures” below and the reconciliation table at the end of this release for more information regarding this non-GAAP financial measure.

Gross margin of 61.9% increased from 58.3% in the second quarter of 2016, resulting primarily from a favorable sales mix with increased sales of higher-margin, proprietary hardware and lower third-party hardware sales.

Total operating expenses of $6.5 million decreased 1% from $6.6 million in the same period last year. The company continues to manage and focus on expenses, while strategically investing in certain areas of the business, such as sales and marketing.

GAAP net loss was $1.2 million, or ($0.03) per diluted share, compared to a net loss of $1.6 million, or ($0.05) per diluted share, for the second quarter of 2016. On a non-GAAP basis, Adj. EBITDA of $52,000 improved from a loss of $438,000 in the same period last year.

At June 30, 2017, the company had no borrowings and $4.8 million in unused availability under its revolving line of credit and cash and cash equivalents of $2.2 million.

Outlook

The company reaffirms its guidance for the full year 2017 of positive revenue growth in the single-digit percentage range. The company expects the level of revenue growth in the second half of 2017 to be impacted by key customer orders, timing of the orders and aggressiveness of the rollout schedules of certain customer projects and initiatives.

Reverse Split

RMG announced today that it will effect a 1-for-4 reverse stock split of its outstanding common stock. The company expects this will be effective for trading purposes as of the commencement of trading on Tuesday, August 15, 2017. The reverse stock split was previously authorized at the RMG’s 2017 Annual Meeting of Stockholders and the company’s Board of Directors approved a ratio within the approved range on August 1, 2017.

The reverse stock split is intended to increase the per share trading price of RMG’s common stock to satisfy the $1.00 minimum bid price requirement for continued listing on The NASDAQ Capital Market. RMG’s common stock will continue to trade on The NASDAQ Capital Market under the symbol “RMGN”. As a result of the reverse stock split, every four pre-split shares of common stock outstanding will become one share of common stock. The reverse stock split will reduce the number of shares of RMG's outstanding common stock from approximately 44.6 million shares to approximately 11.2 million shares. The reverse split will also apply to common stock issuable upon the exercise of RMG’s outstanding warrants and stock options.

RMG’s transfer agent, Continental Stock Transfer & Trust Company, which is also acting as the exchange agent for the reverse split, will provide instructions to shareholders regarding the process for exchanging share certificates. Any fractional shares of common stock resulting from the reverse stock split will be rounded up to the nearest whole post-split share and no shareholders will receive cash in lieu of fractional shares.

Additional information about the reverse stock split can be found in RMG’s Current Report on Form 8-K being filed today with the Securities and Exchange Commission (SEC), a copy of which will be also available at www.sec.gov or in the Investor Relations section of RMG’s website at www.rmgnetworks.com.

Conference Call

Management will host a conference call to discuss these results on Thursday, August 3, 2017 at 9 a.m. ET.  To access the call, please dial 1-877-890-5060 (toll free) or 1-678-967-4604 and reference conference 58633678.  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’s web site at http://ir.rmgnetworks.com/phoenix.zhtml?c=251935&p=irol-calendar. All participants should call or access the website approximately 5 minutes before the conference begins. The webcast and slide presentation will be available for replay for at least 90 days.

A telephonic replay of this conference call will also be available by dialing 1-855-859-2056 (toll free) or 1-404-537-3406 and entering passcode: 58633678 from 12 p.m. ET on August 3, 2017 until 11:00 p.m. ET on August 10, 2017.

About RMG

RMG (NASDAQ:RMGN) goes beyond traditional communications to help businesses increase productivity, efficiency and engagement through digital messaging. By combining best-in-class software, hardware, business applications and services, RMG offers a single point of accountability for integrated data visualization and real-time performance management. The company is headquartered in Dallas, Texas, with additional offices in the United States, United Kingdom and the United Arab Emirates. For more information, visit www.rmgnetworks.com.

About Non-GAAP Financial Measures

This release includes Adj. EBITDA, a non-GAAP financial measure as defined under SEC regulations. In evaluating its business, RMG considers and uses Adj. 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 measure and should not be used in isolation, but in conjunction with this GAAP measure. Our definition of Adj. EBITDA is set forth in footnote (1) above, and a reconciliation between Adj. EBITDA and the relevant GAAP measure is set forth in the table 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, guidance relating to future financial performance and expected operating results, such as revenue growth, our ability to effect a reverse stock split and the timing of such split, our ability to achieve profitability, our position within the markets that we serve, our ability to introduce new or improved products and services (including anticipated upgrades to our technology), our ability to better market our products and services, our efforts to grow our business and any implicit continuing improvement in financial performance.

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 ability to raise additional capital on satisfactory terms, or at all; 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; the ability of the company to maintain its Nasdaq listing; the competitive environment in the markets in which the company operates; the risk that the anticipated benefits of 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.

 © 2017 RMG Networks Holding Corporation. RMG, RMG Networks and its logo are trademarks and/or service marks of RMG Networks Holding Corporation.


(Financial tables appear below)

RMG Networks Holding Corporation
Consolidated Balance Sheets
June 30, 2017 and December 31, 2016
(In thousands, except share and per share information)
 
    June 30,    December 31, 
    2017   2016  
    (Unaudited)      
Assets            
Current assets:            
Cash and cash equivalents   $  2,202     $  5,142  
Accounts receivable, net of allowance for doubtful accounts of $366 and $364, respectively      9,224        10,381  
Inventory, net      769        830  
Prepaid assets      762        762  
Total current assets      12,957        17,115  
Property and equipment, net      3,275        3,710  
Intangible assets, net      5,676        6,780  
Loan origination fees      26        66  
Other assets      188        228  
Total assets   $  22,122     $  27,899  
Liabilities and Stockholders’ equity            
Current liabilities:            
Accounts payable   $  1,807     $  3,231  
Accrued liabilities      2,158        3,392  
Secured line of credit      —        1,274  
Deferred revenue      7,778        7,327  
Total current liabilities      11,743        15,224  
Warrant liability      59        289  
Deferred revenue – non-current      620        655  
Deferred rent and other      1,538        1,646  
Total liabilities      13,960        17,814  
Stockholders’ equity:            
Common stock, $.0001 par value, (250,000,000 shares authorized; 44,923,949 shares issued;
44,623,949 shares outstanding, at June 30, 2017 and December 31, 2016, respectively.)
     5        5  
Additional paid-in-capital      113,836        113,510  
Accumulated other comprehensive loss      (731 )      (944 )
Retained earnings (accumulated deficit)      (104,468 )      (102,006 )
Treasury Stock, at cost (300,000 shares)      (480 )      (480 )
Total stockholders’ equity      8,162        10,085  
Total liabilities and stockholders’ equity   $  22,122     $  27,899  


RMG Networks Holding Corporation
Consolidated Statements of Comprehensive Loss
For the Three and Six Months Ended June 30, 2017 and 2016
(In thousands, except share and per share information)
(Unaudited)
 
    Three Months Ended   Six Months Ended  
    June 30,    June 30,   
 
    2017     2016     2017     2016    
Revenue:                          
Products   $  3,854     $  3,051     $  7,737     $  6,906    
Maintenance and content services      3,381        3,532        6,589        6,940    
Professional services      1,852        2,128        3,730        3,531    
Total Revenue      9,087        8,711        18,056        17,377    
Cost of Revenue:                          
Products      1,944        1,757        4,290        3,880    
Maintenance and content services      391        412        800        726    
Professional services      1,131        1,462        2,401        2,667    
Total Cost of Revenue      3,466        3,631        7,491        7,273    
Gross Profit      5,621        5,080        10,565        10,104    
Operating expenses:                          
Sales and marketing      2,398        2,034        4,534        3,896    
General and administrative      2,706        3,076        5,554        6,289    
Research and development      644        697        1,312        1,398    
Depreciation and amortization      788        790        1,562        1,609    
Total operating expenses      6,536        6,597        12,962        13,192    
Operating loss      (915 )      (1,517 )      (2,397 )      (3,088 )  
Other Income (Expense):                          
Gain on change in warrant liability      —        48        231        48    
Interest (expense) and other income – net      (283 )      129        (308 )      383    
Loss before income taxes and discontinued operations      (1,198 )      (1,340 )      (2,474 )      (2,657 )  
Income tax benefit      (12 )      —        (12 )      —    
Total loss from continuing operations      (1,186 )      (1,340 )      (2,462 )      (2,657 )  
Loss from discontinued operations, net of taxes      —        (260 )      —        (260 )  
Net loss      (1,186 )      (1,600 )      (2,462 )      (2,917 )  
Other comprehensive loss:                          
Foreign currency translation adjustments      164        (292 )      212        (404 )  
Total comprehensive loss   $  (1,022 )   $  (1,892 )   $  (2,250 )   $  (3,321 )  
                           
Continuing operations   $  (0.03 )   $  (0.04 )   $  (0.06 )   $  (0.07 )  
Discontinued operations      —        (0.01 )      —        (0.01 )  
Net loss per share of Common Stock (basic and diluted)         $  (0.03 )   $  (0.05 )   $  (0.06 )   $  (0.08 )  
Weighted average shares used in computing basic and
diluted net loss per share of Common Stock
     44,623,949        36,882,041        44,623,949        36,882,041    


RMG Networks Holding Corporation
Consolidated Statements of Cash Flows (Inclusive of Discontinued Operations)
Six Months Ended June 30, 2017 and 2016
(In thousands)
(Unaudited)
 
    Six Months Ended  
    June 30,   
    2017     2016    
Cash flows from operating activities              
Net loss   $  (2,462 )   $  (2,917 )  
Adjustments to reconcile net loss to net cash used in operating activities:                                        
Depreciation and amortization      1,562        1,609    
Gain on change in warrant liability      (231 )      (48 )  
Loss from disposal of fixed assets - net of accumulated depreciation      75        —    
Stock-based compensation      326        610    
Non-cash loan origination fees      39        34    
Non-cash directors’ fees      43        31    
Allowance for doubtful accounts      (14 )      —    
Changes in operating assets and liabilities:              
Accounts receivable      1,053        1,910    
Inventory      52        57    
Other current assets      (13 )      202    
Other assets, net      40        10    
Accounts payable      (1,403 )      (793 )  
Accrued liabilities      (1,258 )      (1,006 )  
Deferred revenue      491        223    
Loss (gain) on long-term contract      —        (350 )  
Deferred rent and other liabilities      (107 )      (182 )  
Net cash used in operating activities      (1,807 )      (610 )  
Cash flows from investing activities              
Purchases of property and equipment      (107 )      (140 )  
Net cash used in investing activities      (107 )      (140 )  
Cash flows from financing activities              
Borrowings on line of credit      —        700    
Payments on line of credit      (1,274 )      —    
Net cash provided by (used in) financing activities      (1,274 )      700    
Effect of exchange rate changes on cash      248        (284 )  
Net decrease in cash and cash equivalents      (2,940 )      (334 )  
Cash and cash equivalents, beginning of period      5,142        3,206    
Cash and cash equivalents, end of period   $  2,202     $  2,872    
Supplemental disclosures of cash flow information:              
Cash paid during the period for interest   $  12     $  105    
Cash paid during the period for income taxes   $  —     $  77    


RMG Networks Holding Corporation
Reconciliation of Net Loss to Adj. EBITDA
Three and Six Months Ended June 30, 2017 and 2016
(In thousands)
(Unaudited)
 
          Three Months Ended   Six Months Ended
  June 30,   June 30,
  2017     2016     2017     2016  
                       
Net Loss $  (1,186 )   $  (1,600 )   $  (2,462 )   $  (2,917 )
                       
Loss from discontinued operations, net of taxes                                          -        260        -        260  
                               
Loss from continuing operations        (1,186 )      (1,340 )      (2,462 )      (2,657 )
                               
Interest expense and other (income) - net      283        (129 )      308        (383 )
Income tax benefit          (12 )      -        (12 )      -  
Gain on change in warrant liability      -        (48 )      (231 )      (48 )
                               
Operating loss          (915 )      (1,517 )      (2,397 )      (3,088 )
                               
Depreciation and amortization        788        790        1,562        1,609  
Stock-based compensation        179        289        326        610  
                               
Adj. EBITDA       $  52     $  (438 )   $  (509 )   $  (869 )

 

Contact:

Investor
Brett Maas/Rob Fink
646-536-7331/646-415-8972
ir@rmgnetworks.com

or

Media
Gloria Lee
972-744-3958
gloria.lee@rmgnetworks.com

RMG Networks Holding Corporation