Sonic Foundry Releases Preliminary 2008 Fiscal Q1 Results

MADISON, WI — Sonic Foundry® Inc. (NASDAQ: SOFO), a leader in automated rich media communications technology, today announced that it expects its fiscal first quarter revenue, ending December 31, 2007, to be approximately $2.5 million and first quarter loss to be approximately $3.5 million or $(0.10) per share. Key factors affecting the quarter involve:

• Slowing economic conditions, specifically within the corporate and financial services markets on which the company historically depends for sales in its fiscal first quarter;
  
  
• Lagging sales to corporate customers, leading the company to allocate more resources to the higher education market, which is seasonally weaker in fiscal Q1;
  
  
• An increased focus on fiscal Q2 product roll outs and education bundles supporting Microsoft’s Silverlight technology, allowing for the best cross-platform, cross-browser playback for Windows and Mac environments.
  
  

Business seasonality is increasingly affecting results, with the higher education market buying at a faster rate midyear. However, recent sales pipeline activity is now being derived to a greater extent from higher education and this segment has increased beyond historical levels of 50 percent.

As a result, the company continues to build its product and service offerings to address consistent and growing demand from the higher education sector, where scale and efficiency of sales efforts are emerging most rapidly. Similarly, it anticipates that newly developed service offerings will continue to generate more revenue in application areas such as corporate training and knowledge delivery online. An increase in sales efficiency is also expected with the company’s concentration on additional sales to existing customers within these target markets.

With the change in market sector demands, Sonic Foundry is now deploying a greater portion of its resources to faster growing segments. This effort includes the introduction of new product bundles and expanded service offerings in fiscal Q2. The company has also initiated cost savings measures that will reduce its operating costs by approximately $4 million annually and improve its progress towards profitability. The measures include personnel reductions and restructuring of its sales efforts, as well as eliminating various program costs that were not deemed necessary to achieve the company’s FY08 strategic initiatives.

Final results for the first quarter of fiscal 2008 will be released on Thursday, February 7, 2008 after the close of the market. The company will host a corporate webcast for analysts and investors that day at 3:30 p.m. CT/ 4:30 p.m. ET. It will use its patented rich media communications system, Mediasite®, to webcast the presentation for live and on-demand viewing. To access the presentation, go to www.sonicfoundry.com/q1 on or after February 7, 2008. An archive of the conference call will be available for 30 days.