Sonic Foundry Announces Preliminary Fourth Quarter Results

Sonic Foundry[R] Inc. (NASDAQ: SOFO), a leading provider of rich media software, systems and services, today announced its preliminary fourth quarter revenue expectations.
Revenue results for the quarter have been impacted by a combination of one-time events surrounding the aftermath of the September 11th tragedy and continued weak economic conditions. Specifically, the Company's direct efforts and retail sales efforts were affected by the resulting market slow down. The Company's quarterly electronic direct marketing campaign, launched on the morning of September 11th was withdrawn the same day, resulting in lower than anticipated sales for the quarter. The Company plans to re-launch the program during the current quarter with full marketing credits granted by third party firms.
Similarly, the Company experienced strong pre-holiday shipments to retail distributors during the quarter followed by subsequent weak retail traffic and customer sell through as the impact of the events played out. As a result, the Company has chosen to adopt a more conservative treatment of consumer retail sales by using consignment accounting for shipments to consumer distributors. The total impact will reduce fourth quarter revenue by as much as 25% below expectations. Revenues from consignment shipments and direct sales are expected to occur in the first fiscal quarter of 2002 as a result of new direct marketing campaigns and holiday sales demand.
The recently completed acquisition of MediaSite, Inc. will also move Company resources to higher end products, services and systems where they are expected to be the nucleus for greater growth. The new subsidiary will focus on growing market segments, including government systems applications, entertainment industry opportunities and enhancing corporate applications with multimedia.
The Company continued to reduce its exposure to lower margin retail channels by reducing program costs and invoking staff reductions in sales, engineering and operations that supported the consumer effort. The Company also refined the estimated value of equipment identified in the December 2000 restructuring plan as no longer necessary in operations. The adjustments will result in an additional restructuring charge in the September 2001 quarter of approximately $1 million.
The Company is assessing the carrying value of certain assets including goodwill recorded in the acquisitions of STV Communications and International Image and may conclude a charge is necessary in the quarter ended September 30, 2001 to reflect an impairment in value. Additionally, the Company plans to adopt new accounting rules regarding business combinations and the amortization of intangible assets during the first fiscal quarter of 2002. Under the new rules, the Company would cease the amortization of goodwill and would annually assess its carrying value. Although the Company has not performed the required tests in assessing goodwill under the new rules, it appears likely that adoption will result in a significant reduction in carrying value if not already recorded in evaluating year-end results.
In addition to work force reductions in the area of retail product sales, the Company has also put into place several significant programs designed to improve cash flow and drive greater efficiency from operations. Specifically, the Company implemented reductions in compensation and related costs, enacted a voluntary deferred compensation program and reduced executive salaries. This combination is expected to allow the Company to continue to meet targeted positive EBITDA performance for fiscal 2002 results.
"Given the extraordinary circumstances surrounding the events of last month, it's not surprising that business results were affected in the manner we experienced " said Rimas P. Buinevicius, Chairman and CEO. "Our business model continues to be adaptable to these changing conditions and we will continue to proactively manage our day to day operations prudently. In addition, new business opportunities are opening up in the Systems area as we begin our integration process with MediaSite and work more closely with this new customer class. We are very confident that our new offerings will position the Company uniquely in the rapidly emerging rich media marketplace."
A complete fourth quarter and fiscal year end earnings release is scheduled for November 8, 2001. Following the release, the management will host its quarterly conference call at www.vcall.com.