SONIC FOUNDRY INC - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - August 9, 2018

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Sonic Foundry Announces Fiscal 2018 Third Quarter Financial Results

MADISON, Wis. - August 9, 2018 - 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
•
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, down from $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 90% 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

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

Loss 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

 
1,161

 
1,445

   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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