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RMG Networks Fourth Quarter Earnings: Still waiting for a step in the top line

I had hoped that RMG Networks would have a blowout fourth quarter.  That didn’t turn out to be the case, but I’m still optimistic about the company and am holding onto my position.

The drag continues to come from the Middle East.  Overall, sales in the fourth quarter were $10.7 million, down from $11.8 million in 2015.  North American sales were up substantially, increasing 25% year over year.  But Middle East sales were down $2.4 million for the quarter year over year, which is just a huge number when you consider that sales for the Middle East were  only $3.4 million for the entire year in 2015.

Below you can see the dynamic.  North American sales have taken off while overall sales have been held back by tough year over year comps in the Middle East.

Now maybe, just maybe this headwind is starting to abate.  First, comps for 2017 are going to be easier because the Middle East generated so little revenue in 2016.   Second, because oil prices are stabilizing they are starting to see things pick up in that region.  On the conference call they said:

I can tell you that obviously we have a plan for every quarter, for each of our geographies and our plan for Q1 for the Middle East we have already completed contractually all the sales required to hit our number for Q1 in the Middle East and that is a dramatic change from 2016

They went on to say they are negotiating another large deal, I believe for the new RMG Max product, with a new customer in the Middle East.  If it closes, the deal would be the “single largest” in the quarter.

The company also provided an update on their partnerships.  It sounds like the Airbus DS Communications partnership (announced in August) has gained the most traction.  The partnership is expected to launch in the first quarter when Airbus releases their next gen 911 system called Vesta which RMG is integrating a display solution with.  They said they had already received $100,000 of orders in advance of the launch.

The Regan partnership, of which I believe the primary motivation is to introduce RMG Networks to new customers, has allowed them to “reach more than 200 companies and have 20 active leads”.

Finally Manhattan, where the update was the least specific of the three, the comments were limited to how the two companies are holding joint webinars and sales training.  Michelsen (the CEO) had said on the third quarter call that they expected to see results with Manhattan in early 2017 but there wasn’t any indication of that on the fourth quarter call.  So we’ll have to watch that one closely to see how it develops.

Overall RMG Networks remains pretty positive about the impact of partnerships.  In response to a question, Michelsen said that achieving 10% of 2017 sales from partnerships was “in the ballpark”.  So we will have to see how 2017 unfolds and whether this forecast holds up.

Finally, the company said the pipeline of sales deals is progressing positively.  The overall size is up about 20% year over year, the larger deal count is up about 1/3 and the average deal size is up 17%.

Overall it was directionally positive quarter, but we need to see this translate into sales.  In my opinion, the first quarter is big.  With the Middle East no longer a headwind, with Europe “improving” and with an expectation of strength in North America, there is no reason that the first quarter won’t be good.  It needs to be or I’m going to start questioning why all the positive “color” is not translating into numbers.  I’m hopeful I won’t have to go there.

10 Comments Post a comment
  1. Gregg M Sterling #

    The pilot that converted to an order they received a $250k order for one facility. The company has a total of 50 facilities so assuming that the product continues to deliver they can see several million dollars per year from that for the next few years (plus recurring revenue).

    There are two other big pilots they had going on that I know of which are still in the works as well. They’ve indicated both of those are still looking good.

    I agree this Q was slightly disappointing, but I think the Middle East should get back on track (after all if this product increases productivity ultimately it should pay for itself). Also when you look at ’15 Mid East Q4 and compare to Europe and NA it looks like that may have been a bit of an anomaly.

    I’m still quite optimistic and I think as the JV’s mature (I think they were all announced 2nd half of last year?) they’ll start to gain more traction.



    March 12, 2017
    • All good points. I forgot to mention the pilots because that info was disclosed a few weeks ago so thanks for bringing that up.

      March 12, 2017
  2. Jonathan Jetmundsen #

    Hey appreciate the writeup, would love to hear your thoughts going to into the earnings release in 2 weeks.

    July 20, 2017
    • I hope that they can finally have that break out quarter but I expected that in Q1 and it didn’t happen. They haven’t announced many new contracts in Q2, I think only one. So I don’t have very high expectations. I think that the last thoughts I wrote on them still apply.

      July 23, 2017
      • Jonathan Jetmundsen #

        I agree, they are gaining traction in their new product areas but I don’t think we will see significant top line growth until end of 2017 I best. There are some new positive developments though, I listened to the webcast of their B Riley presentation and May and they indicated they have established a 4th distribution relationship but just aren’t able to formally announce it yet, and that they have started looking at M&A targets for the first time since Michaelson began so wouldn’t be surprised to see a small acquisition in early 2018

        July 23, 2017
  3. Jonathan Jetmundsen #

    Not a great 2Q earnings release but still making progress. Must have good visibility into some major contracts closing in the second half to maintain guidance of higher revenues for the whole year.

    August 3, 2017
    • Yeah I don’t know, I sold out today. Maybe they are expecting big things in the second half but I l’ve been burned too many times to hold on with that expectation. Bottom line to me is they have been positive for over a year now on expectations and we are still waiting. I guess I’m just fed up.

      August 3, 2017
  4. JG #

    What do you think of the buyout attempt here? You think shareholders will go for it?

    April 4, 2018
    • I really haven’t followed the company for some time now so I’m not sure. It sure is odd to have a buyout below the latest price.

      April 4, 2018
  5. JG #

    Any thoughts on management, you thought they treated shareholders faily in the past? I am not involved but looking into it for a potential merger arb

    April 4, 2018

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