Sonic Foundry Announces Third Quarter 2022 Financial Results

MADISON, Wis.–Sonic Foundry, Inc. (NASDAQ: SOFO), the trusted leader in video creation and management solutions, and virtual and hybrid events, today announced consolidated financial results for its fiscal 2022 third quarter ended June 30, 2022.

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Highlights for the Third Quarter Ended June 30, 2022:

• Total revenue was $6.5 million compared to $8.7 million in the prior-year quarter primarily due to a reduction in the number and size of events as customers began to go back to in-person events, client delays in renewals of support contracts due to macro environment concerns, foreign currency impact on Japanese operations, and a lower base of deferred revenue at the start of the quarter.
• Gross margin was 71% of sales versus 70% of sales in the comparable quarter, primarily due to a shift in revenue mix during the quarter.
• Net loss attributable to common stockholders was $0.14 per share compared to net income of $0.31 per diluted share in the third fiscal quarter of 2021, reflecting investments made to enter new markets per previously disclosed strategy.
• Adjusted EBITDA was a negative $1.3 million compared to positive $606 thousand in the third fiscal quarter of 2021.

Year-to-date Financial Highlights

• Total year-to-date revenues of $21.0 million compared to $26.5 million in the same period of 2021, a $5.6 million or 21% decrease.
• Year-to-date gross margin was $14.9 million, or 71% of sales, compared to $18.9 million, or 71% of sales, in the same period of 2021.
• Year-to-date net loss attributable to common stockholders of $4.4 million, or $0.46 per diluted share, compared to net income of $3.5 million, or $0.42 per diluted share, in the same period of 2021.
• Year-to-date Adjusted EBITDA was a loss of $3.1 million compared to $2.8 million gain, in the same year-to-date period of 2021.

Management Commentary:

“In our core Mediasite® business, conditions remained consistent with what we saw in the first half of the fiscal year. Two main issues continued to pressure our revenues and profits—our Events business and our operations in Japan. While we anticipate Events will stabilize, there is still uncertainty in the market. On one hand, in-person meetings and conferences are slowly picking up, but not at the pace we experienced pre-pandemic. At the same time, hybrid and virtual meetings, which are more profitable for us, have seen some pullback as clients search for the correct balance of in-person and virtual. Right now, the Event space is very fluid and could change quickly depending on how people react to the new COVID variants and whether we have a recession of any duration that tightens the corporate purse strings. We also have significant business in Japan and the lackluster economy there, plus an unfavorable currency exchange rate, have created headwinds. We believe Japan will benefit from a return to in-person events as COVID restrictions are relaxed and greater demand will ensue as anticipated government subsidies and event fueled lead generation continues to develop. While these macro factors affecting Mediasite Events are beyond our control, we are committed to growing the Mediasite brand with a wider scope of offerings, including custom integrations, scalable editing and enhancement solutions, production management, content management and other events-adjacent video services,” said Sonic Foundry CEO Joe Mozden, Jr.

“We believe the Mediasite business will gradually improve, and we have optimized our structure for this growth and as such we’ll be prepared when it happens. In the meantime, we have been focused on executing our high-growth, multi-brand strategy. We are well ahead of our business plan for these services and there has been exciting news on several fronts. First, on July 2nd, we opened our first Global Learning Exchange™ (GLX) Hub in the Bahamas with our partner, the Bahamas Institute of Business and Technology. It was gratifying to see the Hub concept become a reality. The facility is fantastic, and I invite you to watch the grand opening highlights. Having a physical hub has been instrumental in attracting other top higher-ed institutions. Hilbert College in upstate New York, University of North Alabama, Arkansas State University, and SkillUp Online, an online skills training provider, have all joined the GLX community and we anticipate announcing several more partnerships in the months ahead. Educators are recognizing the value of GLX’s disruptive model and its ability to provide students around the world with more cost-effective access to world-class academic programs.”

Mozden continued, “We are also making great progress with Vidable™, our other major initiative. Vidable is a next-gen software solution that sits at the intersection of video editing, enterprise video and AI and addresses a $15 billion target market. Video is a market where we clearly have a right to win. We are initially partnering with current Mediasite customers to accelerate the adoption of our software that can deliver instant, comprehensive, and automated video transformation at scale. Thereafter, we will open up Vidable to any video created, on any platform. As proof of concept, we offered top customers a limited release to test drive Vidable captioning services which resulted in every trial converting to Vidable. This gives us strong validation as we engage other customers and prospects, and it opens a new pipeline for Mediasite business.”

“Sonic Foundry now has three brands—Global Learning Exchange™, Vidable™ and Mediasite®—and we are confident that these brands will transform us into a high velocity, high growth company. To support our ongoing transformation, we recently announced organizational changes that will give each of the three business units a dedicated General Manager. Duane Glader will serve as GM for Global Learning Exchange™, Mike Snavely will serve as GM for Vidable™ and Rob Lipps will serve as GM for Mediasite®. All three are highly experienced and proven business builders, who are eager to take their brand to the next level. Sonic Foundry’s brands operate independently but the inter-brand dynamic is synergistic and mutually supportive, both on the product/technology side and the sales side. For instance, the initial sales strategy for Vidable focused directly on our existing Mediasite customer base. And our Mediasite team’s deep experience in the higher ed space has helped to facilitate partnership development for Global Learning Exchange.”

“Finally, I want to thank our shareholders for their patience. When a company announces a transformation, however necessary, there is always a ‘show-me’ element. We are confident that our strategy is a solid path to long-term sustainable growth, and I hope you are as excited as I am about the future of Sonic Foundry,” concluded Mozden.

Fiscal Third Quarter 2022 Operating Results:

Service revenue, which included support, cloud services, events, and professional services, was $4.2 million for the fiscal quarter ended June 30, 2022, compared to prior-year-quarter service revenue of $6.0 million. Product revenue was $2.2 million compared to $2.7 million during the same period last year. Cloud services revenue, which also includes event-related cloud services, decreased 16% to $1.7 million in the third quarter of 2022 compared to $2.0 million in the same quarter last year. Event revenue in the third quarter of 2022 was $1.1 million, compared with $1.7 million reported in the comparable year-ago quarter. Gross margin was $4.6 million for the third quarter of fiscal 2022, compared with $6.0 million in the same period of the prior fiscal year.

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, and severance and subtracts gain from debt forgiveness 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 to adjusted EBITDA for the third quarter ended June 30, 2022, and 2021 are included in the release.

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.