Sonic Foundry Announces Fiscal 2019 Second Quarter Financial Results

MADISON, Wis., May 17, 2019 — Sonic Foundry, Inc. (OTC Pink Sheets: SOFO), the trusted leader for video creation and management solutions, today announced consolidated financial results for its fiscal 2019 second quarter ended March 31, 2019.

Fiscal 2019 Second Quarter Highlights

  • Total revenue was $8 million ($8.6 million without distribution impact) compared to $8.5 million in the second quarter of 2018
  • Gross margin was $6 million or 75 percent of sales compared to $5.9 million, or 70 percent of sales in the second quarter of 2018
  • Adjusted EBITDA of $(830,000), compared to $(808,000) in the second quarter of 2018
  • Net loss of $(1.5) million ($(1.1) million without distribution impact), or $(0.29) per share compared to net loss of $(1.4) million, or $(0.34) per share in the second quarter of 2018
  • Billings totaled $7.5 million in the second quarter of 2019, a decrease of 13 percent compared to the same period last year
  • Net loss in the first quarter of 2019 remained unchanged from preliminary results released on March 21, 2019
  • Unearned revenue decreased to $10.6 million as of March 31, 2019

Fiscal 2019 Second Quarter Review Service billings, including support, hosting, events, and installs saw a decrease of 9 percent from prior year for a total of $5.2 million. Product billings were down 21 percent to $2.3 million during the second quarter of fiscal year 2019 compared to the same period last year. Product billings and revenue were negatively impacted by a planned reduction of product inventory maintained by domestic distributors of $557 thousand during the quarter and $1.2 million year to date. The remaining balance of approximately  $88,000 is expected to be eliminated in the third fiscal quarter. The company expects to recognize $3.5 million of the current unearned revenue in the third quarter of fiscal 2019.

Recurring revenue of $6.7 million was 84 percent of total revenue in the second quarter of 2019, up from $6.2 million, or 74 percent of total revenue in the second quarter of 2018. The increase was driven by the strong demand for annual support renewals.

Operating expenses were $7.1 million, down $72,000 or 1 percent from the same period in 2018. The net loss of $1.5 million was comparable to the same period in 2018.

“We are undertaking an in-depth look at our execution to see where we can make strategic and operational changes to help ensure the great products and services we’re delivering are translating to revenue growth,” said Michael Norregaard, CEO, Sonic Foundry. “We are optimistic about the increased momentum of Mediasite Video Cloud and consistent customer renewals we saw in the second quarter. As we look to the future with excitement, we are strategically focused on maximizing operational efficiency to expand our customer relationships, bring new high-impact solutions to the market and ensure our customers succeed at every step.”  

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 March 31, 2019 and 2018 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.

About Sonic Foundry®, Inc.

Sonic Foundry (OTC Pink Sheets: 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.mediasite.com and @mediasite.

© 2019 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.

Media Relations: Nicole Wise, Director of Communications 920.226.0269 [email protected]

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

 March 31,  2019 September 30,  2018
Assets   
Current assets:   
Cash and cash equivalents$1,182  $1,189 
Accounts receivable, net of allowances of $45 and $5246,092  7,418 
Financing receivables, current, net of allowances of $526, respectively103  100 
Inventories1,641  1,027 
Investment in sales-type lease, current155  150 
Capitalized commissions, current459   
Prepaid expenses and other current assets968  941 
Total current assets10,600  10,825 
Property and equipment:   
Leasehold improvements1,113  1,105 
Computer equipment5,977  5,718 
Furniture and fixtures1,179  1,099 
Total property and equipment8,269  7,922 
Less accumulated depreciation and amortization6,533  6,009 
Property and equipment, net1,736  1,913 
Other assets:   
Financing receivables, long-term187  181 
Investment in sales-type lease, long-term258  249 
Capitalized commissions, long-term129   
Other long-term assets414  415 
Total assets$13,324  $13,583 
Liabilities and stockholders’ deficit   
Current liabilities:   
Revolving lines of credit$451  $885 
Accounts payable1,832  1,610 
Accrued liabilities1,595  1,609 
Unearned revenue8,301  11,645 
Current portion of capital lease and financing arrangements205  248 
Current portion of notes payable and warrant debt, net of discounts770  593 
Total current liabilities13,154  16,590 
Long-term portion of unearned revenue2,329  1,691 
Long-term portion of capital lease and financing arrangements97  187 
Long-term portion of notes payable and warrant debt, net of discounts4,658  1,357 
Derivative liability, at fair value10  14 
Other liabilities174  202 
Total liabilities20,422  20,041 
Commitments and contingencies   
Stockholders’ deficit:   
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; 2,056 and 2,678 shares, respectively, issued and outstanding, at amounts paid in1,187  1,651 
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; 5,291,494 and 5,113,400 shares issued and 5,278,778 and 5,100,684 shares outstanding53  51 
Additional paid-in capital201,490  200,130 
Accumulated deficit(209,002) (207,419)
Accumulated other comprehensive loss(631) (676)
Receivable for common stock issued(26) (26)
Treasury stock, at cost, 12,716 shares(169) (169)
Total stockholders’ deficit(7,098) (6,458)
Total liabilities and stockholders’ deficit$13,324  $13,583 

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,
 2019 2018 2019 2018
Revenue:       
Product and other$1,796  $2,690  $3,547  $5,713 
Services6,201  5,770  11,952  11,642 
Total revenue7,997  8,460  15,499  17,355 
Cost of revenue:       
Product and other645  1,203  1,296  2,426 
Services1,359  1,328  2,550  2,530 
Total cost of revenue2,004  2,531  3,846  4,956 
Gross margin5,993  5,929  11,653  12,399 
Operating expenses:       
Selling and marketing3,836  3,867  7,779  7,977 
General and administrative1,345  1,509  2,883  3,082 
Product development1,935  1,812  3,768  3,565 
Total operating expenses7,116  7,188  14,430  14,624 
Loss from operations(1,123) (1,259) (2,777) (2,225)
Non-operating income (expenses):       
Interest expense, net(227) (103) (381) (195)
Other income (expense), net(11) 19  (3) 10 
Total non-operating expenses(238) (84) (384) (185)
Loss before income taxes(1,361) (1,343) (3,161) (2,410)
Benefit (provision) for income taxes(125) (106) (113) 1,281 
Net loss(1,486) (1,449) (3,274) (1,129)
Dividends on preferred stock(45) (50) (98) (122)
Net loss attributable to common stockholders$(1,531) $(1,499) $(3,372) $(1,251)
Loss per common share       
– basic$(0.29) $(0.34) $(0.64) $(0.28)
– diluted$(0.29) $(0.34) $(0.64) $(0.28)
Weighted average common shares       
– basic5,278,500  4,461,310  5,232,449  4,459,675 
– diluted5,278,500  4,461,310  5,232,449  4,459,675 

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

 Six Months Ended March 31,
 2019 2018
Operating activities   
Net loss$(3,274) $(1,129)
Adjustments to reconcile net loss to net cash used in operating activities:   
Amortization of other intangibles97  268 
Depreciation and amortization of property and equipment516  536 
Provision for doubtful accounts – including financing receivables 26  175 
Deferred taxes  (1,361)
Stock-based compensation expense related to stock options and warrants219  320 
Remeasurement gain on derivative liability(7) (9)
Changes in operating assets and liabilities:   
Accounts receivable1,354  995 
Financing receivables(2) 1,525 
Inventories(612) (59)
Capitalized commissions105   
Prepaid expenses and other current assets(25) 381 
Accounts payable and accrued liabilities89  700 
Other long-term liabilities(33) (101)
Unearned revenue(1,704) (2,789)
Net cash used in operating activities(3,251) (548)
Investing activities   
Purchases of property and equipment(222) (238)
Net cash used in investing activities(222) (238)
Financing activities   
Proceeds from notes payable4,500  1,000 
Proceeds from revolving lines of credit8,748  10,822 
Payments on notes payable(333) (681)
Payments on revolving lines of credit(9,186) (10,743)
Payment of debt issuance costs(110) (20)
Proceeds from issuance of preferred stock and common stock5  508 
Payments on capital lease and financing arrangements(134) (159)
Net cash provided by financing activities3,490  727 
Changes in cash and cash equivalents due to changes in foreign currency(24) 28 
Net decrease in cash and cash equivalents(7) (31)
Cash and cash equivalents at beginning of year1,189  1,211 
Cash and cash equivalents at end of year$1,182  $1,180 
Supplemental cash flow information:   
Interest paid$264  $169 
Income taxes paid, foreign160  43 
Non-cash financing and investing activities:   
Property and equipment financed by capital lease or accounts payable112  256 
Debt discount676   
Deemed dividend for beneficial conversion feature of preferred stock  28 
Preferred stock dividends paid in additional shares98  50 
Conversion of preferred shares563   

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

 Three Months Ended March 31, Six Months Ended March 31,
 2019 2018 2019 2018
        
Net loss$(1,486) $(1,449) $(3,274) $(1,129)
Add:       
  Depreciation and amortization248  356  516  751 
  Income tax benefit (provision)125  106  113  (1,281)
  Interest expense227  104  381  196 
  Stock-based compensation expense56  75  217  320 
Adjusted EBITDA$(830) $(808) $(2,047) $(1,143)
        

 

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