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Press Release

Sonic Foundry Announces Fiscal 2018 First Quarter Financial Results

MADISON, Wis. – February 13, 2018 – Sonic Foundry, Inc. (NASDAQ: SOFO), the trusted leader for video creation and management solutions, today announced consolidated financial results for its fiscal 2018 first quarter ended  December 31, 2017.

Fiscal 2018 First Quarter Highlights

  • Total revenues were $8.9 million compared to $9.3 million in the first quarter of 2017
  • Gross margin was $6.5 million, or 73% of sales compared to $6.7 million, or 72% of sales in the first quarter of 2017
  • Adjusted EBITDA more than cut in half to $(335,000), compared to $(765,000) in the first quarter of 2017
  • Net income of $320 thousand, or $0.06 per share compared to a net loss of $(1.5) million, or $(0.34) per share in the first quarter of 2017 (Net Income in the first quarter of 2018 benefitted from a tax gain of $1.3 million related to tax legislation changes in December 2017)
  • Billings totaled $7.6 million in the first quarter of 2018, an increase of 5% compared to same period last year
  • Unearned revenue decreased to $13.0 million as of December 31, 2017, as we recognized over $1.3 million in revenues primarily from a number of large events billed in the prior quarter
  • Over $1 million positive swing in operating cash flow, to $231,000 for the three month period

Fiscal 2018 First Quarter Review

Service billings, including support, hosting, events, and installs saw an increase of 5% from prior year to a total of $4.7 million. Product billings saw an increase of 4% to $2.9 million during the first quarter of fiscal year 2018. The company expects to recognize $3.8 million of the current unearned revenue in the second quarter of fiscal 2018.

Recurring revenue of $6.2 million was 70% of total revenue in the first quarter of 2018, up from $5.9 million, or 64% of total revenue in the first quarter of 2017.These increases were driven by the strong demand for our cloud offering and annual software licenses, strength in support services, and continued customer repeat purchases and renewals.

The loss before income taxes decreased by $573,000 due in large part to efforts made by the company to reduce operating expenses, including certain headcount reductions made in the third quarter of 2017. Operating expenses were $7.4 million, down $776 thousand or 9% from the same period in 2017. The net loss in the prior year of $1.5 million improved to income of $320,000 due to a tax credit of $1.3 million related to the recent reduction in Federal tax rates.

“In the first quarter we saw our right-sized video solutions continue to extend the value of Mediasite product and services technologies to a broadening customer base. This allows customers to ‘mix and match’ capture solutions ranging from software only to our most capable recorders. Our strategy to address low-technology rooms and grow the market for our affordable hardware solutions is an area of increased interest from customers. This has resulted in a 50% increase in recorders shipped over Q1 of 2017,” said Gary Weis, CEO of Sonic Foundry.

Mr. Weis continued, “We continue to invest in technology partnerships based on value to our customers, such as the recently announced integration of our platform with NewTek NDI, which are geared to enabling our customers to harness the power of Mediasite for their specific video creation and management needs. In 2018 we will remain focused on customer acquisition, higher levels of sales and operating performance, and technology development.”

 Non-GAAP Financial Information

To supplement and enhance the reader’s understanding of our operating performance and our ability to satisfy lender requirements, we disclose adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (adjusted EBITDA), a non-GAAP measure of operating performance. Our adjusted EBITDA measure additionally adds back stock compensation expense from the SEC definition of EBITDA. As such, our adjusted EBITDA may not be comparable to similarly titled measures reported by other companies, and should not be viewed as an alternative to net income as a measurement of our operating performance. Our credit agreement contains a minimum EBITDA calculation based, in part, on adjusted EBITDA since this measure is representative of adjusted income available for debt and interest payments. A reconciliation of net loss to adjusted EBITDA for the quarters ended December 31, 2017 and 2016 are included in the release. The company is unable to provide a reconciliation of projected EBITDA to projected net income due to the unknown effect, timing and potential significance of certain income statement items.

Webcast

The company will hold its corporate webcast for analysts and investors at 4:30 p.m. ET today, February 13. Sonic Foundry will use its webcasting technology, Mediasite, to stream the presentation for live and on-demand viewing. To access the webcast register at www.sonicfoundry.com/earnings on or before February 13, 2018. A video archive of the full earnings call, including Q&A, will be available for 90 days.

About Sonic Foundry®, Inc.

Sonic Foundry (NASDAQ: SOFO) is the trusted global leader for video capture, management and streaming solutions. Trusted by more than 4,700 educational institutions, corporations, health organizations and government entities in over 65 countries, its Mediasite Video Platform quickly and cost-effectively automates the capture, management, delivery and search of live and on-demand streaming videos. Leading research firms Aragon, Forrester, Wainhouse and Frost & Sullivan recognize Sonic Foundry as a leader in enterprise video, webcasting and lecture capture. Learn more at www.sonicfoundry.com and @mediasite.

© 2018 Sonic Foundry, Inc. Product and service names mentioned herein are the trademarks of Sonic Foundry, Inc. or their respective owners.

Forward Looking Statements

This news release contains forward-looking statements about the products and services of Sonic Foundry within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  Forward looking statements include statements about our products and services, our customer base, strategic investments, new partnerships, our future operating results and any statements we make about the company’s future.  These types of statements address matters that are subject to many risks and uncertainties. Actual results could differ materially from the forward-looking guidance we provide.  Any forward-looking statements should be considered in context of the risk factors disclosed in our periodic forms 10Q, 10K and other filings with the SEC.  These filings can be accessed on-line at www.sec.gov and other websites or can be obtained from the company’s investor relations department.  All of the information and disclosures we make in this news release regarding our business, including any forward looking guidance, are as of the date given and we assume no obligation to update or change this information, regardless of subsequent events.

Contacts:
Media:
Nicole Wise
Director of Communications
Sonic Foundry
920.226.0269
nicolew@sonicfoundry.com 

Investor:
Peter Seltzberg, Managing Director
Darrow Associates, Inc.
1951 Lowell Lane
Merrick, NY 11566
516-419-9915
pseltzberg@darrowir.com
www.darrowir.com

Sonic Foundry, Inc.
Condensed Consolidated Balance Sheets

(in thousands, except for share data)
(Unaudited)
December  31, September 30,
2017 2017
Assets    
Current assets:
Cash and cash equivalents $    1,507 $        1,211
Accounts receivable, net of allowances of $400 and $375 5,878 7,903
Financing receivables, current, net of allowances of $200 924 925
Inventories 934 986
Investment in sales-type lease, current 148 148
Prepaid expenses and other current assets 921 1,085
      Total current assets 10,312 12,258
Property and equipment:
Leasehold improvements 1,041 1,041
Computer equipment 6,135 6,101
Furniture and fixtures 813 789
Total property and equipment 7,989          7,931
Less accumulated depreciation and amortization 6,457          6,181
Property and equipment, net 1,532 1,750
Other assets:
Goodwill         10,468          10,455
Customer relationships, net of amortization of $1,056 and $990             1,447             1,505
Product rights, net of amortization of $442 and $411 230 261
Financing receivables, long-term 1,310 1,310
Investment in sales-type lease, long-term 406 407
Other long-term assets 515 410
Total assets $       26,220 $       28,356
Liabilities and stockholders’ equity
Current liabilities:
Revolving line of credit $           2,215 $           2,065
Accounts payable        1,076 1,314
Accrued liabilities 1,426 1,387
Unearned revenue 9,797 11,332
Current portion of capital lease and financing arrangements 217 256
Current portion of notes payable, net of discounts 338 737
Total current liabilities 15,069 17,091
Long-term portion of unearned revenue 3,239 2,970
Long-term portion of capital lease and financing arrangements 192 244
Long-term portion of notes payable and warrant debt, net of discounts 129 123
Derivative liability, at fair value 9 12
Other liabilities 303 372
Deferred tax liability 3,076 4,426
Total liabilities  22,017 25,238
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value, authorized 500,000 shares; none issued

9% Preferred stock, Series A, voting, cumulative,  convertible, $.01 par value (liquidation preference of $1,000 per share), authorized 2,500 shares, 2,209 and 1,510 shares issued and outstanding, respectively, at amounts paid in

1,824

1,280

5% Preferred stock, Series B, voting, cumulative,  convertible, $.01 par value (liquidation preference at par), authorized 1,000,000 shares, none issued

Common stock, $.01 par value, authorized 10,000,000 shares; 4,470,791 shares issued and 4,458,075 shares outstanding

45

45

Additional paid-in capital 198,037 197,836
Accumulated deficit (194,933) (195,253)
Accumulated other comprehensive loss (575) (595)
Receivable for common stock issued (26) (26)
Treasury stock, at cost, 12,716 shares (169) (169)
Total stockholders’ equity 4,203 3,118
Total liabilities and stockholders’ equity $      26,220 $      28,356

 

 

Sonic Foundry, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except for share and per share data)
(Unaudited)
  Three Months Ended

December 31, 

  2017 2016 
Revenue:
Product and other $          3,080 $       3,769
Services 5,815 5,538
Total revenue 8,895  9,307
Cost of revenue:
Product and other 1,280 1,687
Services 1,145 911
Total cost of revenue 2,425 2,598
Gross margin 6,470  6,709
Operating expenses:
Selling and marketing 4,110 4,810
General and administrative 1,573 1,450
Product development 1,753 1,951
Total operating expenses 7,436 8,211
Loss from operations (966)  (1,502)
Non-operating income (expenses):
Interest expense, net (92) (150)
Other income (expense), net (9) 12
Total non-operating expenses (101) (138)
Loss before income taxes (1,067)  (1,640)
Benefit for income taxes 1,387 131
Net income (loss) 320  (1,509)
Dividends on preferred stock (72)
Net income (loss) attributable to common stockholders 248 (1,509)
Earnings (loss) per common share:
          -basic $     0.06 $      (0.34)
          -diluted $     0.06 $      (0.34)
Weighted average common shares
          -basic 4,458,075 4,411,559
          -diluted 4,512,822 4,411,559

 

 

Sonic Foundry, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
  Three Months Ended   December 31,
  2017   2016
Operating activities
Net income (loss) $   320 $   (1,509)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
   Amortization of other intangibles 134 140
   Depreciation and amortization of property and equipment 285 362
   Provision for doubtful accounts 25 (30)
   Deferred taxes (1,396) (3)
   Stock-based compensation expense related to stock options 245 254
   Remeasurement gain on subordinated debt (6)
   Remeasurement gain on derivative liability (3) (21)
   Changes in operating assets and liabilities:
     Accounts receivable 2,007 1,044
     Financing receivables 33
     Inventories 52 614
     Prepaid expenses and other current assets 106 147
     Accounts payable and accrued liabilities (202) (147)
     Other long-term liabilities (69) 87
     Unearned revenue (1,273) (1,793)
Net cash provided (used in) by operating activities 231   (828)
Investing activities
Purchases of property and equipment (68) (548)
Net cash used in investing activities (68)   (548)
Financing activities
Proceeds from notes payable
Proceeds from line of credit 5,743 6,922
Payments on notes payable (410) (497)
Payments on line of credit (5,591) (5,585)
Payment of debt issuance costs (20)
Proceeds from issuance of preferred stock, common stock and warrants 500
Payments on capital lease and financing arrangements (91) (73)
Net cash provided by financing activities 131   767
Changes in cash and cash equivalents due to changes in foreign currency 2 (105)
Net increase (decrease) in cash and cash equivalents 296 (714)
Cash and cash equivalents at beginning of year 1,211 1,794
Cash and cash equivalents at end of period $     1,507   $     1,080
       
 Supplemental cash flow information:      
      Interest paid 91 139
      Income taxes paid, foreign 34    27 
Non-cash financing and investing activities:      
 Property and equipment financed by capital lease or accounts payable   34 
 Deemed dividend for beneficial conversion feature of preferred stock 28    ─ 
 Preferred stock dividends paid in additional shares 44    ─ 

 

Sonic Foundry, Inc.
Condensed Consolidated Non-GAAP Adjusted EBITDA Reconciliation
(in thousands)

(Unaudited)

Three Months Ended

December 31,

2017   2016 
Net income (loss) $    320 $      (1,509)
Add:
   Depreciation and amortization 419 494
   Income tax expense (1,387) (131)
   Interest expense 68 127
   Stock-based compensation expense 245 254
Adjusted EBITDA $       (335)   $        (765) 

 

 

 

 

 

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