Sonic Foundry Announces Fiscal 2017 Third Quarter Financial Results

MADISON, Wis., Aug. 10, 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 third quarter ended June 30, 2017.

Fiscal 2017 Third Quarter Highlights
  • Total revenues of $9.8 million, flat with $9.8 million in the third quarter of 2016
  • Gross margin remained at $7.2 million, or 74% of sales, the same as the third quarter of 2016
  • Adjusted EBITDA of $246 thousand compared to $240 thousand in the third quarter of 2016
  • Net loss of $(489) thousand, or $(0.13) per share compared to a net loss of  $(552) thousand, or $(0.13) per share in the third quarter of 2016
  • Billings totaled $10.3 million in the third quarter of 2017, a decline of 7% compared to the same period last year
  • Unearned revenue from services and products decreased $876 thousand during the first three quarters of 2017 due to realization of deferred amounts for events and an international customer. The balance was $13.2 million as of June 30, 2017, compared to $14.1 million at the beginning of the year

Fiscal 2017 Third Quarter Review

Domestic higher education and events accounts experienced reduced activity during the quarter compared to last year while results in Japan were significantly better. International product and service billings accounted for 42% percent of Sonic Foundry's consolidated billings in the third quarter of fiscal 2017, compared to 34% percent in the third quarter of fiscal 2016. Our Japanese subsidiary recognized the remaining billing from the five-year contract it initiated during the second quarter of fiscal 2017, which generated total billings of over $800 thousand during the third quarter of fiscal 2017. Approximately $600 thousand of product revenue was recognized during the third quarter of fiscal 2017 from this contract and the remaining deferred support amount will be recognized over the life of the contract.

"The third fiscal quarter demonstrated significant improvements over the previous quarter. Strong cash collections and acceleration of inventory sell-through resulted in over $2 million in operating cash flow for the quarter which has funded all of the company's operating cash year to date. We made significant improvement in net income, reducing our loss in the second quarter by nearly $1 million," said Gary Weis, CEO of Sonic Foundry.

"While revenue was flat when compared to the third quarter of the prior year, our strategic customer base of large universities and corporate customers continues to remain loyal and grow. We have plans in place to accelerate growth in the middle market of higher education. We are launching new and exciting products this month, with the objective of providing more right-sized lecture capture solutions to these new market segments. These dynamics have us positioned for long-term financial performance improvements, and should result in positive contributions to our results in the fourth fiscal quarter, and enable us to build on this quarter's progress as we close out the year and beyond."

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 nine months ended June 30, 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, August 10. 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 August 10, 2017. 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 4,300 educational institutions, corporations, health organizations and government entities in 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.

© 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)
 
  June 30,  2017   September 30,  2016
Assets      
Current assets:      
Cash and cash equivalents $ 1,605     $ 1,794  
Accounts receivable, net of allowances of $375 and $225 9,191     11,646  
Inventories 1,119     1,904  
Investment in sales-type lease, current 118      
Prepaid expenses and other current assets 1,144     1,404  
Total current assets 13,177     16,748  
Property and equipment:      
Leasehold improvements 1,042     879  
Computer equipment 6,499     5,837  
Furniture and fixtures 911     825  
   Total property and equipment 8,452     7,541  
   Less accumulated depreciation and amortization 6,583     5,510  
      Property and equipment, net 1,869     2,031  
Other assets:      
Goodwill 11,036     11,310  
Customer relationships, net of amortization of $923 and $723 1,558     1,882  
Product rights, net of amortization of $380 and $287 292     385  
Investment in sales-type lease, long-term 377      
Other long-term assets 647     726  
Total assets $ 28,956     $ 33,082  
Liabilities and stockholders' equity      
Current liabilities:      
Revolving lines of credit $ 2,270     $ 1,772  
Accounts payable 1,252     961  
Accrued liabilities 1,499     1,883  
Unearned revenue 11,370     12,834  
Current portion of capital lease and financing arrangements 298     283  
Current portion of notes payable, net of discounts 1,116     1,491  
Current portion of subordinated note payable     93  
   Total current liabilities 17,805     19,317  
Long-term portion of unearned revenue 1,845     1,257  
Long-term portion of capital lease and financing arrangements 295     231  
Long-term portion of notes payable and warrant debt, net of discounts 117     871  
Derivative liability, at fair value 25     67  
Other liabilities 402     259  
Deferred tax liability 4,444     4,564  
   Total liabilities 24,933     26,566  
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 1,000 shares; 830 shares issued and outstanding, at amounts paid in 756      
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 4,449,893 and 4,411,559 shares outstanding, respectively 45     44  
Additional paid-in capital 197,698     197,064  
Accumulated deficit (193,668 )   (190,214 )
Accumulated other comprehensive loss (613 )   (183 )
Receivable for common stock issued (26 )   (26 )
Treasury stock, at cost, 12,716 shares (169 )   (169 )
   Total stockholders' equity 4,023     6,516  
Total liabilities and stockholders' equity $ 28,956     $ 33,082  

 
Sonic Foundry, Inc. Condensed Consolidated Statements of Operations (in thousands, except for share and per share data) (Unaudited)
 
  Three Months Ended June 30,   Nine Months Ended June 30,
  2017   2016   2017 2016
Revenue:            
Product and other $ 4,420     $ 4,062     11,543   $ 12,162  
Services 5,413     5,755     16,157   16,356  
Total revenue 9,833     9,817     27,700   28,518  
Cost of revenue:            
Product and other 1,560     1,547     4,728   4,823  
Services 1,026     1,035     2,952   2,811  
Total cost of revenue 2,586     2,582     7,680   7,634  
Gross margin 7,247     7,235     20,020   20,884  
Operating expenses:            
Selling and marketing 4,368     4,575     13,186   13,449  
General and administrative 1,482     1,371     4,400   4,218  
Product development 1,768     1,741     5,581   4,999  
Total operating expenses 7,618     7,687     23,167   22,666  
Loss from operations (371 )   (452 )   (3,147 ) (1,782 )
Non-operating income (expenses):            
Interest expense, net (130 )   (149 )   (396 ) (452 )
Other income (expense), net 34     31     (43 ) 34  
Total non-operating expenses (96 )   (118 )   (439 ) (418 )
Loss before income taxes (467 )   (570 )   (3,586 ) (2,200 )
Benefit (provision) for income taxes (22 )   18     132   (270 )
Net loss (489 )   (552 )   (3,454 ) (2,470 )
Dividends on preferred stock (75 )       (75 )  
Net loss attributable to common stockholders $ (564 )   $ (552 )   $ (3,529 ) $ (2,470 )
Loss per common share:            
- basic $ (0.13 )   $ (0.13 )   $ (0.80 ) $ (0.56 )
- diluted $ (0.13 )   $ (0.13 )   $ (0.80 ) $ (0.56 )
Weighted average common shares            
- basic 4,449,893     4,402,479     4,429,006   4,381,987  
- diluted 4,449,893     4,402,479     4,429,006   4,381,987  

 
Sonic Foundry, Inc. Condensed Consolidated Adjusted EBITDA Reconciliation (in thousands) (Unaudited)
 
  Three Months Ended June 30,   Nine Months Ended June 30,
  2017   2016   2017   2016
               
Net loss $ (489 )   $ (552 )   $ (3,454 )   $ (2,470 )
Add:              
  Depreciation and amortization 505     533     1,516     1,619  
  Income tax expense 22     (18 )   (132 )   270  
  Interest expense 107     127     327     430  
  Stock-based compensation expense 101     150     487     671  
Adjusted EBITDA $ 246     $ 240     $ (1,256 )   $ 520  
               

 
Sonic Foundry, Inc. Condensed Consolidated Statements of Cash Flows (in thousands) (Unaudited)
 
  Nine Months Ended June 30,
  2017   2016
Operating activities      
Net loss $ (3,454 )   $ (2,470 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:      
Amortization of other intangibles 420     515  
Depreciation and amortization of property and equipment 1,096     1,181  
Gain on sale of fixed assets 8      
Provision for doubtful accounts 150     (50 )
Deferred taxes (42 )   253  
Stock-based compensation expense related to stock options 487     671  
Remeasurement gain on subordinated debt (6 )   (4 )
Remeasurement gain on derivative liability (42 )   (53 )
Changes in operating assets and liabilities:      
   Accounts receivable 2,191     1,165  
   Inventories 771     239  
   Prepaid expenses and other current assets (190 )   43  
   Accounts payable and accrued liabilities (8 )   (717 )
   Other long-term liabilities 158     (66 )
   Unearned revenue (823 )   1,101  
Net cash provided by operating activities 716     1,808  
Investing activities      
Purchases of property and equipment (676 )   (208 )
Net cash used in investing activities (676 )   (208 )
Financing activities      
Proceeds from notes payable     500  
Proceeds from line of credit 17,531     11,845  
Payments on notes payable (1,317 )   (1,279 )
Payments on line of credit (16,999 )   (12,076 )
Payment of debt issuance costs (26 )   (36 )
Proceeds from issuance of preferred stock, common stock and warrants 771     31  
Payments on capital lease and financing arrangements (255 )   (202 )
Net cash used in financing activities (295 )   (1,217 )
Changes in cash and cash equivalents due to changes in foreign currency 66     (30 )
Net increase (decrease) in cash and cash equivalents (189 )   353  
Cash and cash equivalents at beginning of period 1,794     1,976  
Cash and cash equivalents at end of period $ 1,605     $ 2,329  
Supplemental cash flow information:      
Interest paid $ 403     $ 459  
Income taxes paid, foreign 27     10  
Non-cash financing and investing activities:      
Property and equipment financed by capital lease or accounts payable 358     355  
Debt discount     16  
Stock issued for board of director's fees 133     164  
Deemed dividend for beneficial conversion feature of preferred stock 69      
Preferred stock dividends paid in additional shares 6      
           
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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