Sonic Foundry Announces Fiscal 2018 First Quarter Financial Results

MADISON, Wis., Feb. 13, 2018 (GLOBE NEWSWIRE) — 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 benefited 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 the 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 income (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 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,
 2017
  September 30,
 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 lines 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 by (used in) 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 period 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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