MADISON, Wis., May 11, 2017 (GLOBE NEWSWIRE) -- Sonic Foundry, Inc. (NASDAQ:SOFO), the trusted leader for video creation and management solutions, today announced consolidated financial results for its fiscal 2017 second quarter ended March 31, 2017.

Fiscal 2017 Second Quarter Highlights
  • Total revenues of $8.6 million, represent a decrease of 11% compared to $9.6 million in the second quarter of 2016
  • Gross margin decreased to $6.1 million, or 71% of sales compared to $7.3 million, or 76% of sales for the second quarter of 2016
  • Adjusted EBITDA of $(736) thousand compared to $461 thousand in the second quarter of 2016
  • Net loss of $1.5 million, or $(0.33) per share compared to a net loss of $711 thousand or $(0.16) per share in the second quarter of 2016
  • Billings totaled $9.2 million in the second quarter of 2017, a decline of 10% compared to last year's same period
  • Unearned revenue from services and products decreased $1.4 million, or 10% to $12.7 million as of March 31, 2017, compared to $14.1 million at the beginning of the year

Fiscal 2017 Second Quarter Review

Lower billings in the quarter were impacted by lower recorded international activity, with international product and service billings accounting for 46% percent of Sonic Foundry's consolidated billings in the second quarter of fiscal 2017, compared to 53% percent in the second quarter of fiscal 2016. In the second quarter of fiscal 2017 billings were $300 thousand to our distributor in China, compared to the $625 thousand in software billings recorded in the second quarter of fiscal 2016. To date the distributor has invested $1.4 million in cash for Mediasite products, plus taken delivery of another $1.2 million of product which is deferred for revenue recognition purposes. International opportunities in Europe, the Middle East and India continue to progress but did not close in the second quarter. While billings from the company's Japanese subsidiary were lower than expectations in the second quarter, the company entered into a five year contract that will generate total billings of approximately $1.1 million over the life of the contract, 20% of which was billed in the second quarter of fiscal 2017.

Consolidated gross margin of 71% was five percentage points lower than the same period last year, and was the result of a deferral of a high margin sale to our China distributor in 2017 and of a high volume, lower margin peripheral sale from our subsidiary in Japan, which also occurred in 2017.

The company announced a restructuring that targets a reduction in corporate overhead expenses between $2 and $3 million annually, and reduces the level of revenue required to break-even by approximately $3 to $4 million.  Restructuring plans include reducing headcount and consolidating certain functional areas, re-organizing the sales team, and modifying relationships with certain channel partners. Such initiatives will result in a non-material charge to fiscal third quarter earnings.

"While our North American business performed close to expectations for the quarter, our results reflect the impact of unique circumstances in the Asia-PAC and Europe, Middle East and Africa regions. Transaction structure and channel performance in Japan, timing in EMEA, and slower than anticipated growth in China resulted in performance below our expectations. We have already begun to make meaningful improvements, both in mitigating the root causes of the underperformance, and in reducing our cost structure. It's unlikely we can recover the missed billings for the year, but combined, these changes will produce significant benefits for the long term, including the remainder of this fiscal year and into the next, and also help us achieve our goal of improving bottom line performance over fiscal 2016," said Gary Weis, CEO of Sonic Foundry.

Weis continued, "Our team has great confidence that our products and services are the best in the industry and that our customers continue to make Mediasite their preferred and strategic option for all aspects of enterprise video. We continue to innovate on the strength of our platform, leveraging our existing technology base to deliver added value to our customers which will generate revenue for Sonic Foundry. Our strategies of expanding into new geographies and partnering with select customers to incorporate our technology into their high-value service offerings are gaining traction, and we anticipate continued progress in the second half of 2017. While quarter-by-quarter transaction timing is challenging in our market, we are optimistic that with these initiatives we have laid the foundation to realize future growth and ultimately increase shareholder value."

OutlookResults for the first half of the year did not meet our expectations and guidance. While we expect sales execution to improve in the second half of the year based on continued actions we're taking, the shortfall in revenue in the first half makes achieving full-year guidance challenging. Likewise, structural and organizational changes make predicting near-term results more difficult. Management's goal is to drive second half top line improvements and expense reductions in order to improve upon the net loss reported in fiscal 2016. The Company therefore is withdrawing previously issued annual guidance and will re-evaluate providing guidance at the start of the next fiscal year.

Non-GAAP Financial InformationTo 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 and six months ended March 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.

WebcastThe company will hold its corporate webcast for analysts and investors at 4:30 p.m. ET today, May 11. 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 11, 2017. A video archive of the full earnings call, including Q&A, will be available for 90 days.

About Sonic Foundry®, Inc.Sonic Foundry, Inc. (NASDAQ:SOFO) (the "Company") is the trusted global leader for video capture, management and streaming solutions. Trusted by educational institutions, corporations and government entities, Mediasite Video Platform quickly and cost-effectively automates the capture, management, delivery and search of live and on-demand streaming videos and rich media. Mediasite transforms communications, training, education and events for more than 4,300 customers in over 65 countries. Leading analyst research firms Aragon, Forrester, Wainhouse and Frost & Sullivan recognize Sonic Foundry as a leader in enterprise video, webcasting and lecture capture.

© 2017 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.

Sonic Foundry, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except for share data)
(Unaudited)
 
  March 31,  2017   September 30,  2016
Assets      
Current assets:      
Cash and cash equivalents $ 850     $ 1,794  
Accounts receivable, net of allowances of $275 and $225 12,156     11,646  
Inventories 1,434     1,904  
Prepaid expenses and other current assets 1,245     1,404  
Total current assets 15,685     16,748  
Property and equipment:      
Leasehold improvements 1,043     879  
Computer equipment 6,445     5,837  
Furniture and fixtures 891     825  
Total property and equipment 8,379     7,541  
Less accumulated depreciation and amortization 6,237     5,510  
Property and equipment, net 2,142     2,031  
Other assets:      
Goodwill 10,993     11,310  
Customer relationships, net of amortization of $857 and $723 1,600     1,882  
Product rights, net of amortization of $349 and $287 323     385  
Other long-term assets 322     726  
Total assets $ 31,065     $ 33,082  
Liabilities and stockholders' equity      
Current liabilities:      
Revolving lines of credit $ 4,022     $ 1,772  
Accounts payable 1,738     961  
Accrued liabilities 1,817     1,883  
Unearned revenue 10,824     12,834  
Current portion of capital lease and financing arrangements 356     283  
Current portion of notes payable, net of discounts 1,364     1,491  
Current portion of subordinated note payable     93  
Total current liabilities 20,121     19,317  
Long-term portion of unearned revenue 1,880     1,257  
Long-term portion of capital lease and financing arrangements 342     231  
Long-term portion of notes payable and warrant debt, net of discounts 237     871  
Derivative liability, at fair value 46     67  
Other liabilities 386     259  
Deferred tax liability 4,462     4,564  
Total liabilities 27,474     26,566  
Commitments and contingencies      
Stockholders' equity:      
Preferred stock, $.01 par value, authorized 500,000 shares; none issued      
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; 4,462,609 and 4,424,275 shares issued and 4,449,893and 4,411,559 shares outstanding, respectively 45     44  
Additional paid-in capital 197,603     197,064  
Accumulated deficit (193,179 )   (190,214 )
Accumulated other comprehensive loss (683 )   (183 )
Receivable for common stock issued (26 )   (26 )
Treasury stock, at cost, 12,716 shares (169 )   (169 )
Total stockholders' equity 3,591     6,516  
Total liabilities and stockholders' equity $ 31,065     $ 33,082  

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,
    2017   2016   2017 2016
Revenue:              
Product and other   $ 3,354     $ 4,209     $ 7,123   $ 8,101  
Services   5,206     5,403     10,744   10,602  
Total revenue   8,560     9,612     17,867   18,703  
Cost of revenue:              
Product and other   1,481     1,410     3,168   3,275  
Services   1,015     929     1,926   1,775  
Total cost of revenue   2,496     2,339     5,094   5,050  
Gross margin   6,064     7,273     12,773   13,653  
Operating expenses:              
Selling and marketing   4,008     4,467     8,818   8,879  
General and administrative   1,468     1,376     2,918   2,847  
Product development   1,862     1,644     3,813   3,258  
Total operating expenses   7,338     7,487     15,549   14,984  
Loss from operations   (1,274 )   (214 )   (2,776 ) (1,331 )
Non-operating income (expenses):              
Interest expense, net   (116 )   (154 )   (266 ) (303 )
Other income (expense), net   (89 )   (61 )   (77 ) 4  
Total non-operating expenses   (205 )   (215 )   (343 ) (299 )
Loss before income taxes   (1,479 )   (429 )   (3,119 ) (1,630 )
Benefit (provision) for income taxes   23     (282 )   154   (288 )
Net loss   $ (1,456 )   $ (711 )   $ (2,965 ) $ (1,918 )
Loss per common share:              
- basic   $ (0.33 )   $ (0.16 )   $ (0.67 ) $ (0.44 )
- diluted   $ (0.33 )   $ (0.16 )   $ (0.67 ) $ (0.44 )
Weighted average common shares              
- basic   4,425,720     4,379,943     4,418,562   4,371,797  
- diluted   4,425,720     4,379,943     4,418,562   4,371,797  

Sonic Foundry, Inc.
Condensed Consolidated Adjusted EBITDA Reconciliation
(in thousands)
(Unaudited)
 
    Three Months Ended March 31,   Six Months Ended March 31,
    2017   2016   2017   2016
                 
Net loss   $ (1,456 )   $ (711 )   $ (2,965 )   $ (1,918 )
Add:                
  Depreciation and amortization   518     549     1,011     1,085  
  Income tax expense   (23 )   282     (154 )   288  
  Interest expense   93     154     220     303  
  Stock-based compensation expense   132     187     386     521  
Adjusted EBITDA   $ (736 )   $ 461     $ (1,502 )   $ 279  
                 

Sonic Foundry, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited) 
     
    Six Months Ended March 31,
    2017   2016
Operating activities        
Net loss   $ (2,965 )   $ (1,918 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:        
Amortization of other intangibles   282     362  
Depreciation and amortization of property and equipment   757     801  
Provision for doubtful accounts   50     (50 )
Deferred taxes   (15 )   178  
Stock-based compensation expense related to stock options   386     521  
Remeasurement gain on subordinated debt   (6 )   (2 )
Remeasurement gain on derivative liability   (21 )   (33 )
Changes in operating assets and liabilities:        
Accounts receivable   (701 )   2,077  
Inventories   457     284  
Prepaid expenses and other current assets   511     (61 )
Accounts payable and accrued liabilities   798     (1,002 )
Other long-term liabilities   141     (43 )
Unearned revenue   (1,296 )   (73 )
Net cash provided by (used in) operating activities   (1,622 )   1,041  
Investing activities        
Purchases of property and equipment   (586 )   (149 )
Net cash used in investing activities   (586 )   (149 )
Financing activities        
Proceeds from notes payable       500  
Proceeds from line of credit   12,529     5,445  
Payments on notes payable   (907 )   (862 )
Payments on line of credit   (10,249 )   (5,932 )
Payment of debt issuance costs   (26 )   (10 )
Proceeds from issuance of common stock and warrants   21     31  
Payments on capital lease and financing arrangements   (150 )   (129 )
Net cash provided by (used in) financing activities   1,218     (957 )
Changes in cash and cash equivalents due to changes in foreign currency   46     (27 )
Net decrease in cash and cash equivalents   (944 )   (92 )
Cash and cash equivalents at beginning of period   1,794     1,976  
Cash and cash equivalents at end of period   $ 850     $ 1,884  
Supplemental cash flow information:        
Interest paid   $ 277     $ 310  
Income taxes paid, foreign   27     10  
Non-cash financing and investing activities:        
Property and equipment financed by capital lease or accounts payable   341     246  
Debt discount       16  
Stock issued for board of director's fees   133     164  

 
Contacts:Media:Tammy JacksonDirector of CommunicationsSonic Foundry608.770.9052tammy@sonicfoundry.comInvestor:Peter Seltzberg, Managing DirectorDarrow Associates, Inc.1951 Lowell LaneMerrick, NY 11566516-419-9915pseltzberg@darrowir.comwww.darrowir.com

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