Sonic Foundry Announces Fiscal 2018 Second Quarter Financial Results

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| Source: Sonic Foundry, Inc.

MADISON, Wis., May 15, 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 second quarter ended March 31, 2018.

Fiscal 2018 Second Quarter Highlights

  • Total revenues were $8.5 million compared to $8.6 million in the second quarter of 2017
  • Gross margin was $5.9 million, or 70% of sales compared to $6.1 million, or 71% of sales in the second quarter of 2017
  • Adjusted EBITDA was $(808) thousand compared to $(736) thousand in the second quarter of 2017
  • Net loss of $(1.4) million, or $(0.32) per share compared to $(1.5) million, or $(0.33) per share in the second quarter of 2017
  • Billings totaled $8.5 million in the second quarter of 2018, a decrease of 7% compared to the same period last year
  • Unearned revenue decreased to $11.6 million as of March 31, 2018. The Company reduced unearned revenue for a China distributor by $1.5 million during the quarter due to an expectation that conversion to revenue would take an extended period of time and therefore was not fixed and determinable
  • Reduced operating cash usage by approximately $1.0 million for the six-month period

Fiscal 2018 Second Quarter Review

Service billings, including support, hosting, events, and installs recorded an increase of 5% from prior year to a total of $5.7 million. The company expects to recognize $4.1 million of the current unearned revenue in the third quarter of fiscal 2018. Recurring revenue of $6.2 million was 74% of total revenue in the second quarter of 2018, up from $5.6 million, or 65% of total revenue in the second quarter of 2017.These increases were driven mainly by the strong demand for our cloud offerings.

Product billings were $2.8 million during the second quarter of fiscal year 2018, compared to $3.7 million last year and are $5.7 million year to date compared to $6.5 million last year.  Recorder units shipped increased 13% for the first half of the year compared to last year with shipments of our RL 220 and mini recorders showing an 80% growth.

The loss before income taxes decreased from prior year by $136,000 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 $7.2 million, down $150 thousand or 2% from the same period in 2017. The net loss of $1.4 million was comparable to the same period in 2017.

Sonic Foundry recently closed a financing round with Partners for Growth, a partnership that provides capital funding solutions to private and public technology and life science companies. The facility provides for up to $2.5 million of additional capital on terms similar to the last transaction completed with PFG, which was fully paid earlier this month.

“We are pleased to once again be working with PFG, a partnership that has shown consistent support for Sonic Foundry over the years. The funding, in combination with a recent equity transaction with an existing investor in the company, gives us the ability to make strategic investments to our data centers that enable us to support the increase in Mediasite Video Cloud usage by our customers and fund key strategic initiatives,” said Gary Weis, CEO of Sonic Foundry.

Weis continued, "In the second 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. The increase in recorder units shipped in the first half of fiscal 2018, along with a boost in Mediasite Video Cloud services, leaves us confident that we are on the right track to support our customers’ video strategies, increase our win-rate and ultimately drive revenues to higher levels."

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 and six months ended March 31, 2018 and 2017 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, May 15. 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 May 15, 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.
516-419-9915
pseltzberg@darrowir.com
www.darrowir.com

Sonic Foundry, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except for share data)
(Unaudited)

 March 31,
 2018
 September 30,
 2017
Assets   
Current assets:   
Cash and cash equivalents$1,180  $1,211 
Accounts receivable, net of allowances of $450 and $3757,021  7,903 
Financing receivables, current, net of allowances of $300 and $200330  925 
Inventories1,047  986 
Investment in sales-type lease, current157  148 
Prepaid expenses and other current assets672  1,085 
Total current assets10,407  12,258 
Property and equipment:   
Leasehold improvements1,055  1,041 
Computer equipment6,486  6,101 
Furniture and fixtures917  789 
Total property and equipment8,458  7,931 
Less accumulated depreciation and amortization6,720  6,181 
Property and equipment, net1,738  1,750 
Other assets:   
Goodwill10,617  10,455 
Customer relationships, net of amortization of $1,123 and $9901,461  1,505 
Product rights, net of amortization of $473 and $411200  261 
Financing receivables, long-term302  1,310 
Investment in sales-type lease, long-term430  407 
Other long-term assets484  410 
Total assets$25,639  $28,356 
Liabilities and stockholders’ equity   
Current liabilities:   
Revolving lines of credit$2,170  $2,065 
Accounts payable1,934  1,314 
Accrued liabilities1,640  1,387 
Unearned revenue9,388  11,332 
Current portion of capital lease and financing arrangements259  256 
Current portion of notes payable and warrant debt, net of discounts233  737 
Total current liabilities15,624  17,091 
Long-term portion of unearned revenue2,228  2,970 
Long-term portion of capital lease and financing arrangements270  244 
Long-term portion of notes payable and warrant debt, net of discounts  123 
Long-term portion of subordinated note payable1,000   
Derivative liability, at fair value3  12 
Other liabilities284  372 
Deferred tax liability3,084  4,426 
Total liabilities22,493  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; 2,259 and 1,510 shares issued and outstanding, respectively, at amounts paid in
1,874  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;  4,474,062 and 4,470,791 shares issued and 4,461,346
and 4,458,075 shares outstanding, respectively
45  45 
Additional paid-in capital198,070  197,836 
Accumulated deficit(196,382) (195,253)
Accumulated other comprehensive loss(266) (595)
Receivable for common stock issued(26) (26)
Treasury stock, at cost, 12,716 shares(169) (169)
Total stockholders’ equity3,146  3,118 
Total liabilities and stockholders’ equity$25,639  $28,356 
        

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

 Three Months Ended March 31, Six Months Ended March 31,
 2018 2017 2018 2017
Revenue:       
Product and other$2,690  $3,305  $5,713  $7,029 
Services5,770  5,255  11,642  10,838 
Total revenue8,460  8,560  17,355  17,867 
Cost of revenue:       
Product and other1,203  1,432  2,426  3,074 
Services1,328  1,064  2,530  2,020 
Total cost of revenue2,531  2,496  4,956  5,094 
Gross margin5,929  6,064  12,399  12,773 
Operating expenses:       
Selling and marketing3,867  4,008  7,977  8,818 
General and administrative1,509  1,468  3,082  2,918 
Product development1,812  1,862  3,565  3,813 
Total operating expenses7,188  7,338  14,624  15,549 
Loss from operations(1,259) (1,274) (2,225) (2,776)
Non-operating income (expenses):       
Interest expense, net(103) (116) (195) (266)
Other income (expense), net19  (89) 10  (77)
Total non-operating expenses(84) (205) (185) (343)
Loss before income taxes(1,343) (1,479) (2,410) (3,119)
Benefit (provision) for income taxes(106) 23  1,281  154 
Net loss(1,449) (1,456) (1,129) (2,965)
Dividends on preferred stock(50)   (122)  
Net loss attributable to common stockholders$(1,499) $(1,456) $(1,251) $(2,965)
Loss per common share       
– basic$(0.34) $(0.33) $(0.28) $(0.67)
– diluted$(0.34) $(0.33) $(0.28) $(0.67)
Weighted average common shares       
– basic4,461,310  4,425,720  4,459,675  4,418,562 
– diluted4,461,310  4,425,720  4,459,675  4,418,562 
            

Sonic Foundry, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)

 Six Months Ended March 31,
 2018 2017
Operating activities   
Net loss$(1,129) $(2,965)
Adjustments to reconcile net loss to net cash used in operating activities:   
Amortization of other intangibles268  282 
Depreciation and amortization of property and equipment536  757 
Provision for doubtful accounts175  50 
Deferred taxes(1,361) (15)
Stock-based compensation expense related to stock options320  386 
Remeasurement gain on subordinated debt  (6)
Remeasurement gain on derivative liability(9) (21)
Changes in operating assets and liabilities:   
Accounts receivable995  (727)
Financing receivables1,525  26 
Inventories(59) 457 
Prepaid expenses and other current assets381  511 
Accounts payable and accrued liabilities700  798 
Other long-term liabilities(101) 141 
Unearned revenue(2,789) (1,296)
Net cash used in operating activities(548) (1,622)
Investing activities   
Purchases of property and equipment(238) (586)
Net cash used in investing activities(238) (586)
Financing activities   
Proceeds from notes payable1,000   
Proceeds from revolving lines of credit10,822  12,529 
Payments on notes payable(681) (907)
Payments on revolving lines of credit(10,743) (10,249)
Payment of debt issuance costs(20) (26)
Proceeds from issuance of preferred stock, common stock and warrants508  21 
Payments on capital lease and financing arrangements(159) (150)
Net cash provided by financing activities727  1,218 
Changes in cash and cash equivalents due to changes in foreign currency28  46 
Net decrease in cash and cash equivalents(31) (944)
Cash and cash equivalents at beginning of period1,211  1,794 
Cash and cash equivalents at end of period$1,180  $850 
Supplemental cash flow information:   
Interest paid$169  $277 
Income taxes paid, foreign43  27 
Non-cash financing and investing activities:   
Property and equipment financed by capital lease or accounts payable256  341 
Deemed dividend for beneficial conversion feature of preferred stock28   
Stock issued for board of director's fees  133 
Preferred stock dividends paid in additional shares50   
      

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

 Three Months Ended March 31, Six Months Ended March 31,
 2018 2017 2018 2017
        
Net loss$(1,449) $(1,456) $(1,129) $(2,965)
Add:       
Depreciation and amortization381  518  800  1,011 
Income tax expense (benefit)106  (23) (1,281) (154)
Interest expense79  93  147  220 
Stock-based compensation expense75  132  320  386 
Adjusted EBITDA$(808) $(736) $(1,143) $(1,502)