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Sonic Foundry Announces Fiscal 2018 Third Quarter Financial Results

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MADISON, Wis., Aug. 09, 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 third quarter ended June 30, 2018.

Fiscal 2018 Third Quarter Highlights

  • Total revenues were $8.7 million compared to $9.8 million in the third quarter of 2017, or a decrease of 12%, primarily as a result of a large multi-year transaction completed in Japan last year
  • Gross margin was $6.4 million, or 74% of sales, compared to $7.2 million, or 74% of sales, in the third quarter of 2017
  • Adjusted EBITDA was $(343,000) compared to $246,000 in the third quarter of 2017
  • Net loss of $(1.0) million, or $(0.23) per share, compared to $(489,000), or ($0.13) per share, in the third quarter of 2017
  • Billings totaled $9.0 million in the third quarter of 2018, a decrease of 12%, compared to the same period last year
  • Unearned revenue was $12.0 million as of June 30, 2018, down $2.4 million from September 30, 2017. The Company reduced unearned revenue for a China distributor by $1.5 million during the prior quarter due to an expectation that conversion to revenue would take an extended period of time and therefore was not fixed and determinable
  • Recurring services revenue contributed 68% of total revenues for the quarter
  • Successfully raised $3.0 million in privately negotiated transactions

Fiscal 2018 Third Quarter Review

Service billings, including support, hosting, events, and installs recorded a decrease of 9% from prior year to a total of $5.7 million from $6.2 million. A decrease in events billings in Japan and the Netherlands were the primary driver of the change in service billings. The company expects to recognize $3.7 million of the current unearned revenue in the fourth quarter of fiscal 2018. Recurring revenue of $5.9 million was 68% of total revenue in the third quarter of 2018, compared to $6.0 million, or 61% of total revenue, in the third quarter of 2017.

Product billings were $3.3 million during the third quarter of fiscal year 2018, compared to $4.1 million last year and are $9.0 million year to date compared to $10.3 million last year. Product billings reflect the large transaction noted above in Japan as well as a shift toward larger unit shipments of our-lower cost recorders. Year to date, the Mediasite RL 220 and RL Mini recorder models reflect an increase of 46% over the prior year unit shipments.

Operating expenses were $7.3 million, down $309,000, or 4%, from the same period in 2017. The net loss of $1.0 million increased from a net loss of $489,000 in the same period in 2017.

"While we maintained our gross margins and reduced our operating expenses, thanks in part to cost savings initiatives we implemented earlier this year, the higher education market in North America and Europe continues to be challenging in the current climate. Educators continue to believe that video can improve both student outcomes and retention and CIOs at global modern campuses see video as a communication mainstay, but they are facing a backlog of budget and resources to meet their digital goals," said Gary Weis, CEO of Sonic Foundry.

Weis continued, "We‘ve enhanced our strategy to make video creation more accessible, powerful and easy by increasing our product mix and removing the hurdles to wide-scale campus video adoption. This approach is resonating with new customers that have chosen Mediasite to be the focus of their digital campus initiatives, such as Iqra University in Pakistan, Deakin University in Australia and Cuyahoga Community College in Ohio. We believe other campuses will follow suit when they have appropriate funding. This strategy is also resonating with customers as they rapidly adopt our newest software release. And we're buoyed by the strong demand for our affordable line of recorders. For the remainder of the year we will remain focused on new customer acquisitions and continuing to build relationships."

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 nine months ended June 30, 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, August 9. 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 9, 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 4,900 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. 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)
 
  June 30,
 2018
  September 30,
 2017
Assets      
Current assets:      
Cash and cash equivalents $ 2,129     $ 1,211  
Accounts receivable, net of allowances of $475 and $375 7,084     7,903  
Financing receivables, current, net of allowances of $400 and $200 229     925  
Inventories 917     986  
Investment in sales-type lease, current 154     148  
Prepaid expenses and other current assets 803     1,085  
Total current assets 11,316     12,258  
Property and equipment:      
Leasehold improvements 1,045     1,041  
Computer equipment 7,005     6,101  
Furniture and fixtures 928     789  
Total property and equipment 8,978     7,931  
Less accumulated depreciation and amortization 6,983     6,181  
Property and equipment, net 1,995     1,750  
Other assets:      
Goodwill 10,486     10,455  
Customer relationships, net of amortization of $1,189 and $990 1,337     1,505  
Product rights, net of amortization of $504 and $411 169     261  
Financing receivables, long-term 201     1,310  
Investment in sales-type lease, long-term 290     407  
Other long-term assets 463     410  
Total assets $ 26,257     $ 28,356  
Liabilities and stockholders' equity      
Current liabilities:      
Revolving lines of credit $ 2,239     $ 2,065  
Accounts payable 1,390     1,314  
Accrued liabilities 1,417     1,387  
Unearned revenue 10,325     11,332  
Current portion of capital lease and financing arrangements 265     256  
Current portion of notes payable and warrant debt, net of discounts 369     737  
Total current liabilities 16,005     17,091  
Long-term portion of unearned revenue 1,626     2,970  
Long-term portion of capital lease and financing arrangements 241     244  
Long-term portion of notes payable and warrant debt, net of discounts 1,540     123  
Derivative liability, at fair value 26     12  
Other liabilities 240     372  
Deferred tax liability 3,051     4,426  
Total liabilities 22,729     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 4,500 shares; 3,324 and 1,510 shares issued and outstanding, respectively, at amounts paid in
2,143     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; 4,920,057 and 4,470,791 shares issued and 4,907,341 
and 4,458,075 shares outstanding, respectively
49     45  
Additional paid-in capital 199,471     197,836  
Accumulated deficit (197,402 )   (195,253 )
Accumulated other comprehensive loss (538 )   (595 )
Receivable for common stock issued (26 )   (26 )
Treasury stock, at cost, 12,716 shares (169 )   (169 )
Total stockholders' equity 3,528     3,118  
Total liabilities and stockholders' equity $ 26,257     $ 28,356  



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,
  2018   2017   2018   2017
Revenue:              
Product and other $ 3,214     $ 4,335     $ 8,927     $ 11,363  
Services 5,485     5,498     17,127     16,337  
Total revenue 8,699     9,833     26,054     27,700  
Cost of revenue:              
Product and other 1,388     1,475     3,814     4,548  
Services 916     1,111     3,446     3,132  
Total cost of revenue 2,304     2,586     7,260     7,680  
Gross margin 6,395     7,247     18,794     20,020  
Operating expenses:              
Selling and marketing 3,882     4,368     11,859     13,186  
General and administrative 1,631     1,482     4,713     4,400  
Product development 1,796     1,768     5,361     5,581  
Total operating expenses 7,309     7,618     21,933     23,167  
Loss from operations (914 )   (371 )   (3,139 )   (3,147 )
Non-operating income (expenses):              
Interest expense, net (266 )   (130 )   (461 )   (396 )
Other income (expense), net 88     34     98     (43 )
Total non-operating expenses (178 )   (96 )   (363 )   (439 )
Loss before income taxes (1,092 )   (467 )   (3,502 )   (3,586 )
Benefit (provision) for income taxes 72     (22 )   1,353     132  
Net loss (1,020 )   (489 )   (2,149 )   (3,454 )
Dividends on preferred stock (67 )   (75 )   (189 )   (75 )
Net loss attributable to common stockholders $ (1,087 )   $ (564 )   $ (2,338 )   $ (3,529 )
Loss per common share              
– basic $ (0.23 )   $ (0.13 )   $ (0.51 )   $ (0.80 )
– diluted $ (0.23 )   $ (0.13 )   $ (0.51 )   $ (0.80 )
Weighted average common shares              
– basic 4,709,516     4,449,893     4,542,955     4,429,006  
– diluted 4,709,516     4,449,893     4,542,955     4,429,006  

 

 

Sonic Foundry, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
 
  Nine Months Ended June 30,
  2018   2017
Operating activities      
Net loss $ (2,149 )   $ (3,454 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:      
Amortization of other intangibles 482     420  
Depreciation and amortization of property and equipment 822     1,096  
Gain on sale of fixed assets     8  
Provision for doubtful accounts 300     150  
Deferred taxes (1,387 )   (42 )
Stock-based compensation expense related to stock options 392     487  
Conversion of accrued interest to preferred stock 31      
Beneficial conversion feature recognized on debt converted to preferred stock 71      
Remeasurement gain on subordinated debt     (6 )
Remeasurement gain on derivative liability (16 )   (42 )
Changes in operating assets and liabilities:      
Accounts receivable 834     2,365  
Financing receivables 1,614     (174 )
Inventories 70     771  
Prepaid expenses and other current assets 356     (190 )
Accounts payable and accrued liabilities (126 )   (8 )
Other long-term liabilities (136 )   158  
Unearned revenue (2,347 )   (823 )
Net cash provided by (used in) operating activities (1,189 )   716  
Investing activities      
Purchases of property and equipment (657 )   (676 )
Net cash used in investing activities (657 )   (676 )
Financing activities      
Proceeds from notes payable 3,000      
Proceeds from revolving lines of credit 16,706     17,531  
Payments on notes payable (815 )   (1,317 )
Payments to settle warrant debt  (200 )    
Payments on revolving lines of credit (16,546 )   (16,999 )
Payment of debt issuance costs (97 )   (26 )
Proceeds from issuance of preferred stock, common stock and warrants 1,008     771  
Payments on capital lease and financing arrangements (228 )   (255 )
Net cash provided by (used in) financing activities 2,828     (295 )
Changes in cash and cash equivalents due to changes in foreign currency (64 )   66  
Net increase (decrease) in cash and cash equivalents 918     (189 )
Cash and cash equivalents at beginning of period 1,211     1,794  
Cash and cash equivalents at end of period $ 2,129     $ 1,605  
Supplemental cash flow information:      
Interest paid $ 290     $ 403  
Income taxes paid, foreign 48     27  
Non-cash financing and investing activities:      
Property and equipment financed by capital lease or accounts payable 414     358  
Stock issued for board of director's fees     133  
Debt discount and warrant 127      
Deemed dividend for beneficial conversion feature of preferred stock 28     69  
Preferred stock dividends paid in additional shares 161     6  
Subordinated note payable converted to preferred stock 1,000      

 

 

Sonic Foundry, Inc.
Condensed Consolidated Non-GAAP Adjusted EBITDA Reconciliation
(in thousands)
(Unaudited)
 
  Three Months Ended June 30,   Nine Months Ended June 30,
  2018   2017   2018   2017
               
Net loss $ (1,020 )   $ (489 )   $ (2,149 )   $ (3,454 )
Add:              
  Depreciation and amortization 411     481     1161     1445  
  Income tax expense (benefit) (72 )   22     (1,353 )   (132 )
  Interest expense 266     131     462     398  
  Stock-based compensation expense 72     101     392     487  
Adjusted EBITDA $ (343 )   $ 246     $ (1,487 )   $ (1,256 )
               

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