|Shares Out. (in M):||37||P/E||0||0|
|Market Cap (in $M):||30||P/FCF||0||0|
|Net Debt (in $M):||-0||EBIT||0||0|
RMG Networks is a global provider of end-to-end enterprise digital signage solutions that allow its customers to deliver intelligent and real-time visual content to customers and employees. These solutions encompass installing and maintaining the hardware and the software which include the content and the content management systems that drive the content on the screens.
RMGN has 3 revenue streams:
Their primary business vertical has been contact centers. As the CEO explains: "what goes up on those screens is critical information for people in the call center. How many calls in the queue? What's the average length of time for a call to be answered? How is the team associated with one particular group? Maybe they're a sales team on the phones. How are they performing against other sales teams' leader boards?" Despite its microcap status, RMGN actually already serves 70 of the Fortune 100 and a majority of the Fortune 500. While providing a solution to a company's contact center needs may seem trivial and unsexy, it is actually a significant competitive advantage: "if you are accessing information in companies, 70 of the top 100 companies, you've got to work within the IT organization. And all of these companies, after being in business for many years, we've developed that capability, relationship and trust, and contractual ability to access the data. That is a real barrier; not many companies have that ability."
The growth opportunity is in additional areas of "internal communications" which can be broadly defined as any application where the company is trying to communicate to its employees. One particularly exciting opportunity that RMGN has recently made meaningful strides in penetrating (or rather establishing as there is no de facto provider of these types of solutions) is the supply chain vertical where it is providing real-time information to employees on a warehouse, plant floor, or distribution center. For these visual solutions to have their intended effects, the content management systems need to have flexible data integration capabilities. The data might be pulled in from a company's ERP system and aggregated with multiple additional data sources and then ultimately displayed in real-time to employees to promote increased efficiency. More on this later.
RMGN has been in turnaround mode for the past two years since CEO Bob Michelson was brought in to rein in excessive spending and provide a coherent strategic growth plan. The former management team was the result of a combination (through a SPAC) of the current Enterprise Solutions business and the former Media Networks business (sold for $5.5mm in early 2015). Roth Capital Partners re-initiated coverage on them in August 2015 and provides a good summary of the business and outlined the basic thesis at the time:
Since then, RMGN has traded as one would expect of an underfollowed microcap, falling down to 0.55 and up to 1.30 but is more or less flat since that August report. However, several developments in the past year have significantly increased the probability of a successful turnaround and some revenue timing issues due to macro slowdown in the Middle East and the exiting of a large holder (for apparently non-fundamental reasons) in recent months have provided an attractive entry point into what I think could easily be a multi-bagger by 2018.
I believe the market is underappreciating and/or investors are not paying attention to early signs of increasing acceptance and validation of RMGN's supply chain visualization solution as evidenced by the successful supply chain pilot programs and the channel partnership with Manhattan Associates. RMG first debuted its visual supply chain solution back in early 2014 under the prior leadership team. However, despite providing evidence of double digit productivity gains in distribution centers and warehouses with digital signage systems, there was no cohesive go to market strategy of penetrating this new vertical. Former management's poor historical execution, lack of focus, undisciplined spending, and inefficient salesforce were all reasons to maintain a healthy skepticism. Contrast that against the milestones that RMGN has steadily achieved under the new leadership team:
There isn't much to say on valuation as it's crazy cheap even if you don’t factor in all the potential growth from new verticals. This is a ~30mm EV company with ~40mm in ttm revenues and breakeven EBITDA (should be able to achieve mid-teens EBITDA margins). As with any turnaround, the main question one needs to get comfortable with is whether the new leadership team has correctly diagnosed prior management's mistakes and made the necessary changes to set the foundation for growth. I would recommend reviewing the transcript from the April Roth conference for a more in depth review of all the mistakes of prior management and an outline of the 3 other "planks" to grow the business but I think the above timeline is a clear indicator of traction in what I believe to be the most exciting supply chain vertical and are reflective of the CEO's ability to execute on his strategic plan.
additional channel partners
supply chain pilots and conversions
recovery in Middle East business