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Sonic Foundry Announces Fourth Quarter and Fiscal 2018 Financial Results

MADISON, Wis. – March 15, 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 2018 fourth quarter and fiscal year ended September 30, 2018.

Fiscal 2018 Fourth Quarter Highlights

  • Billings totaled $9.9 million in the fourth quarter of 2018, an increase of 5 percent, compared to the same period last year
  • Total revenues of $8.5 million compared to $8.3 million in the fourth quarter of 2017
  • Gross margin was $6.1 million, or 72 percent of sales, compared to $6.1 million, or 74 percent of sales, in the fourth quarter of 2017
  • Non-cash expense of $11.8 million related to impairment of goodwill and intangible assets recorded in fourth quarter of 2018 compared to $600,000 related to impairment of goodwill recorded in fourth quarter of 2017
  • Deferred tax liability write-off of the portion related to goodwill and intangible assets recorded in fourth quarter of 2018 which offsets impact of impairment by $2.4 million
  • Net loss of $(10) million, or $(2.01) per share, compared to $(1.6) million, or $(0.37) per share, in the fourth quarter of 2017; net loss, net of the one-time impairment charges and the benefit from the write-off of the related deferred tax liability, was $(1.2) million in the fourth quarter of 2018 compared to $(985,000) in the fourth quarter of 2017
  • Net loss in the fourth quarter of 2018 improved by $640,000 from preliminary results released on December 20, 2018 as a result of a final tax adjustment
  • Adjusted EBITDA was $(547,000) compared to $(236,000) in the fourth quarter of 2017
  • Unearned revenue was $13.3 million as of September 30, 2018, down $966,000 from September 30, 2017.

Fiscal 2018 Fourth Quarter Review

Service billings, including support, hosting, events, and installs increased 10 percent to $6.5 million, compared to $5.9 million the prior year. Increases in support and hosting billings primarily drove the change in service billings. The company expects to recognize $4.6 million of the current unearned revenue in the first quarter of fiscal 2019. Recurring revenue of $5.6 million was 66 percent of total revenue in the fourth quarter of 2018, up from $5.4 million, or 65 percent of total revenue, in the fourth quarter of 2017.

Product billings were $3.4 million during the fourth quarter of fiscal year 2018, compared to $3.5 million in the same quarter last year. Product billings are $12.5 million year-to-date, compared to $14.2 million last year, reflecting the shift toward larger unit shipments of our lower cost recorders. Year-to-date, shipments of the Mediasite RL 220, RL 120 and RL Mini recorders increased 50 percent over the prior year (811 in fiscal 2018 vs. 541 in fiscal 2017).

Operating expenses were $7.2 million during the fourth quarter of 2018, up $262,000 or 4 percent, from the same period in 2017. Full impairment of the remaining balance of goodwill and intangible assets of $11.8 million was recorded in the fourth quarter of 2018 compared to $600,000 of goodwill impairment recorded in the same period last year. The net loss of $10 million increased from a net loss of $1.6 million in the same period in 2017, largely due to the impairment charge.

“Our strategic focus in fiscal 2018 to bolster our affordable line of products led to larger shipments of our newest recorder models. We’ve also updated our product mix to offer the most accessible and engaging video solutions on the market, and saw substantial growth of our cloud customers,” said Gary Weis, CEO, Sonic Foundry. “As I’ve said previously, we expect to realize the benefits of actions we’ve already taken to improve business efficiency. The executive team and I are focused on the fundamentals of the business, with the confidence that the strategic operational changes that we’ve put in place will result in efficiencies expected to drive significant improvement to adjusted EBITDA in fiscal 2019 and beyond.”

Non-GAAP Financial Information
To supplement and enhance the reader’s understanding of our operating performance, 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. A reconciliation of net income (loss) to adjusted EBITDA for the fourth quarters and fiscal year ended September 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.

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.sonicfoundry.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

nicolew@sonicfoundry.com

 

Sonic Foundry, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except for share and per share data)
September 30, September 30,
2018 2017
Assets    
Current assets:
Cash and cash equivalents $    1,189 $        1,211
Accounts receivable, net of allowances of $524 and $375 7,418 7,903
Financing receivables, current, net of allowances of $526 and $200 100 925
Inventories 1,027 986
Investment in sales-type lease, current 150 148
Prepaid expenses and other current assets 941 1,085
      Total current assets 10,825 12,258
Property and equipment:
Leasehold improvements 1,105 1,041
Computer equipment 5,718 6,101
Furniture and fixtures 1,099 789
Total property and equipment 7,922 7,931
Less accumulated depreciation and amortization 6,009 6,181
Property and equipment, net 1,913 1,750
Other assets:
Goodwill         10,455
Customer relationships, net of amortization of $1,256 and $990             1,505
Product rights, net of amortization of $534 and $411 261
Financing receivables, long-term 181 1,310
Investment in sales-type lease, long-term 249 407
Other long-term assets 415 410
Total assets $       13,583 $       28,356
Liabilities and stockholders’ equity (deficit)
Current liabilities:
Revolving lines of credit $           885 $           2,065
Accounts payable 1,610        1,314
Accrued liabilities 1,609 1,387
Unearned revenue 11,645 11,332
Current portion of capital lease and financing arrangements 248 256
Current portion of notes payable and warrant debt, net of discounts 593 737
Total current liabilities 16,590 17,091
Long-term portion of unearned revenue 1,691 2,970
Long-term portion of capital lease and financing arrangements 187 244
Long-term portion of notes payable and warrant debt, net of discounts 1,357 123
Derivative liability, at fair value 14 12
Other liabilities 202 372
Deferred tax liability 4,426
Total liabilities 20,041  25,238
Commitments and contingencies
Stockholders’ equity (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, 2,678 and 1,510 shares issued and outstanding, respectively, at amounts paid in

1,651

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; 5,113,400 and 4,470,791 shares issued and 5,100,684 and 4,458,075 shares outstanding

51

45

Additional paid-in capital 200,130 197,836
Accumulated deficit (207,419) (195,253)
Accumulated other comprehensive loss (676) (595)
Receivable for common stock issued (26) (26)
Treasury stock, at cost, 12,716 shares (169) (169)
Total stockholders’ equity (deficit) (6,458) 3,118
Total liabilities and stockholders’ equity (deficit) $      13,583 $      28,356

 

 

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

September 30, 

Years Ended 

September 30,  

  2018 2017 2018 2017
Revenue:
Product and other $          3,384 $       3,340 $       12,311 $          14,883
Services 5,106 4,960 22,233 21,117
Total revenue 8,490 8,300 34,544 36,000
Cost of revenue:
Product and other 1,416 1,368 5,231 6,097
Services 979 819 4,425 3,770
Total cost of revenue 2,395 2,187 9,656 9,867
Gross margin 6,095 6,113 24,888 26,133
Operating expenses:
Selling and marketing 3,764 3,726 15,622 16,912
General and administrative 1,641 1,541 6,354 5,941
Product development 1,781 1,657 7,142 7,238
Impairment of goodwill and intangible assets 11,809 600 11,809 600
Total operating expenses 18,995 7,524 40,927 30,691
Loss from operations (12,900) (1,411) (16,039) (4,558)
Non-operating income (expenses):
Interest expense, net (140) (99) (601) (495)
Other income (expense), net 44 (22) 142 (65)
Total non-operating expenses (96) (121) (459) (560)
Loss before incomes taxes (12,996)  (1,532)  (16,498) (5,118)
Benefit (provision) for income taxes 2,978 (53) 4,332 79
Net loss (10,018)  (1,585)  (12,166) (5,039)
Dividends on preferred stock (70) (94) (257) (169)
Net loss attributable to common stockholders (10,088) (1,679) (12,423) (5,208)
Loss per common share:
          -Basic $     (2.01) $      (0.37) $      (2.67)       $      (1.17)
          -Diluted $     (2.01) $      (0.37) $      (2.67) $      (1.17)
Weighted average common shares
          -Basic 4,989,544 4,458,075 4,655,520 4,436,333
          -Diluted 4,989,544 4,458,075 4,655,520 4,436,333

 

 

Sonic Foundry, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
  Years Ended September 30,
  2018   2017
Operating activities
Net loss $   (12,166) $   (5,039)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
   Amortization of other intangibles 621 555
   Depreciation and amortization of property and equipment 1,118 1,422
   Impairment of goodwill and intangible assets 11,809 600
   Loss on sale of fixed assets 8
   Provision for doubtful accounts – including financing receivables 475 349
   Deferred taxes (4,450) (103)
   Stock-based compensation expense related to stock options and warrants 476 622
   Conversion of accrued interest to preferred stock 31
   Beneficial conversion feature recognized on debt converted to     preferred stock 70
   Remeasurement gain on subordinated debt (6)
   Remeasurement gain on derivative liability (28) (55)
   Changes in operating assets and liabilities:
     Accounts receivable 348 1,613
     Financing receivables 1,630 (558)
     Inventories (41) 904
     Prepaid expenses and other current assets 290 89
     Accounts payable and accrued liabilities 268 (109)
     Other long-term liabilities (169) 129
     Unearned revenue (920) 250
Net cash provided by (used in) operating activities (638)   671
Investing activities
Purchases of property and equipment (840) (839)
Net cash used in investing activities (840)   (839)
Financing activities
Proceeds from notes payable 3,000
Proceeds from lines of credit 22,236 23,257
Payments on notes payable (815) (1,727)
Payments on lines of credit (23,422) (22,928)
Payment of debt issuance costs (97) (26)
Payments to settle put on term debt (200)
Proceeds from issuance of preferred stock and common stock 1,094 1,298
Payments on capital lease and financing arrangements (298) (348)
Net cash provided by (used in) financing activities 1,498   (474)
Changes in cash and cash equivalents due to changes in foreign currency (42) 59
Net decrease in cash and cash equivalents (22) (583)
Cash and cash equivalents at beginning of year 1,211 1,794
Cash and cash equivalents at end of year $     1,189   $     1,211
       
 Supplemental cash flow information:      
      Interest paid  $        409 $       505
      Income taxes paid, foreign 370   111 
Non-cash financing and investing activities:      
Property and equipment financed by capital lease or accounts payable 460    341 
Debt discount 127
Stock issued for board of director’s fees 133
Deemed dividend for beneficial conversion feature of preferred stock 28   139
Preferred stock dividends paid in additional shares 230    30
Subordinated note payable converted to preferred stock 1,000

 

 

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

Quarters Ended

September 30,

Years Ended

September 30,

2018 2017 2018 2017
Net loss $    (10,018) $      (1,585) $    (12,166) $    (5,039)
Add:
   Depreciation and amortization 415 461 1,576 1,907
   Income tax expense (benefit) (2,978) 53 (4,331) (79)
   Interest expense 140 100 602 498
   Stock-based compensation expense 85 135 477 622
   Impairment of goodwill and intangible assets 11,809 600 11,809 600
Adjusted EBITDA $       (547) $        (236) $   (2,033) $        (1,491)

About Sonic Foundry®, Inc.

Sonic Foundry (OTC: 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.

Media Relations Nicole Wise Director of Communications nicolew@sonicfoundry.com 920.226.0269
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