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Press release content from Globe Newswire. The AP news staff was not involved in its creation.

Sonic Foundry Announces Fiscal 2019 Second Quarter Financial Results

May 18, 2019

MADISON, Wis., May 17, 2019 (GLOBE NEWSWIRE) -- 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 ReviewService 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 InformationTo 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 StatementsThis 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 Communications920.226.0269 nicolew@sonicfoundry.com

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

March 31, September 2019 30, 2018 ---------- ---------- Assets Current assets: Cash and cash equivalents $ 1,182 $ 1,189 Accounts receivable, net of allowances of $45 and $524 6,092 7,418 Financing receivables, current, net of allowances of $526, respectively 103 100 Inventories 1,641 1,027 Investment in sales-type lease, current 155 150 Capitalized commissions, current 459 — Prepaid expenses and other current assets 968 941 -------- - -------- - Total current assets 10,600 10,825 Property and equipment: Leasehold improvements 1,113 1,105 Computer equipment 5,977 5,718 Furniture and fixtures 1,179 1,099 -------- - -------- - Total property and equipment 8,269 7,922 Less accumulated depreciation and amortization 6,533 6,009 -------- - -------- - Property and equipment, net 1,736 1,913 Other assets: Financing receivables, long-term 187 181 Investment in sales-type lease, long-term 258 249 Capitalized commissions, long-term 129 — Other long-term assets 414 415 -------- - -------- - Total assets $ 13,324 $ 13,583 - ------ - - ------ - Liabilities and stockholders’ deficit Current liabilities: Revolving lines of credit $ 451 $ 885 Accounts payable 1,832 1,610 Accrued liabilities 1,595 1,609 Unearned revenue 8,301 11,645 Current portion of capital lease and financing arrangements 205 248 Current portion of notes payable and warrant debt, net of discounts 770 593 Total current liabilities 13,154 16,590 Long-term portion of unearned revenue 2,329 1,691 Long-term portion of capital lease and financing arrangements 97 187 Long-term portion of notes payable and warrant debt, net of discounts 4,658 1,357 Derivative liability, at fair value 10 14 Other liabilities 174 202 -------- - -------- - Total liabilities 20,422 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 1,187 1,651 shares, respectively, issued and outstanding, at amounts paid in 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 53 51 shares issued and 5,278,778 and 5,100,684 shares outstanding Additional paid-in capital 201,490 200,130 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 Six Months Ended March March 31, 31, 2019 2018 2019 2018 ---------- ---------- ---------- ---------- Revenue: Product and other $ 1,796 $ 2,690 $ 3,547 $ 5,713 Services 6,201 5,770 11,952 11,642 Total revenue 7,997 8,460 15,499 17,355 Cost of revenue: Product and other 645 1,203 1,296 2,426 Services 1,359 1,328 2,550 2,530 -------- - -------- - -------- - -------- - Total cost of revenue 2,004 2,531 3,846 4,956 -------- - -------- - -------- - -------- - Gross margin 5,993 5,929 11,653 12,399 Operating expenses: Selling and marketing 3,836 3,867 7,779 7,977 General and administrative 1,345 1,509 2,883 3,082 Product development 1,935 1,812 3,768 3,565 Total operating expenses 7,116 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 – basic 5,278,500 4,461,310 5,232,449 4,459,675 -------- - -------- - -------- - -------- - – diluted 5,278,500 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 intangibles 97 268 Depreciation and amortization of property and equipment 516 536 Provision for doubtful accounts - including financing receivables 26 175 Deferred taxes — (1,361 ) Stock-based compensation expense related to stock options and warrants 219 320 Remeasurement gain on derivative liability (7 ) (9 ) Changes in operating assets and liabilities: Accounts receivable 1,354 995 Financing receivables (2 ) 1,525 Inventories (612 ) (59 ) Capitalized commissions 105 — Prepaid expenses and other current assets (25 ) 381 Accounts payable and accrued liabilities 89 700 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 payable 4,500 1,000 Proceeds from revolving lines of credit 8,748 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 stock 5 508 Payments on capital lease and financing arrangements (134 ) (159 ) -------- - -------- - Net cash provided by financing activities 3,490 727 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 year 1,189 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, foreign 160 43 Non-cash financing and investing activities: Property and equipment financed by capital lease or accounts payable 112 256 Debt discount 676 — Deemed dividend for beneficial conversion feature of preferred stock — 28 Preferred stock dividends paid in additional shares 98 50 Conversion of preferred shares 563 —

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

Three Months Ended Six Months Ended March March 31, 31, 2019 2018 2019 2018 ---------- ---------- ---------- ---------- Net loss $ (1,486 ) $ (1,449 ) $ (3,274 ) $ (1,129 ) Add: Depreciation and amortization 248 356 516 751 Income tax benefit (provision) 125 106 113 (1,281 ) Interest expense 227 104 381 196 Stock-based compensation expense 56 75 217 320 Adjusted EBITDA $ (830 ) $ (808 ) $ (2,047 ) $ (1,143 ) - ------ - - ------ - - ------ - - ------ -