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Sonic Foundry Reports Record First Quarter Fiscal 2011 Results

MADISON, Wis. Jan. 27, 2011 webcasting lecture capture December 31, 2010

GAAP results include:  

  • $5.9 million
  • $2.8 million
  • $3.0 million
    • $1.6 million
    • $1.4 million
  • $223 thousand $0.06 $(320) thousand ($.09)
  • $5.7 million

Non-GAAP results include:

  • $5.6 million
  • $2.8 million
  • $2.7 million
    • $1.6 million
    • $1.1 million
  • $274 thousand $0.07 $(434) thousand $(0.12)

Non-GAAP net income primarily excludes all non-cash related expenses of stock compensation, depreciation, amortization, provision for income taxes and includes the cash impact of billings not recognized as revenue. Reconciliation between GAAP and non-GAAP results is provided at the end of this press release.

$497 thousand $223 thousand $(320) thousand $274 thousand $(434) thousand

$1.4 million $918 thousand

$2.2 million March 31, 2011

First quarter fiscal 2011 total gross margin was 72 percent and was affected by higher unit volume transactions as well as a higher utilization of third party labor.

In the first quarter fiscal 2011, 65 percent of billings were to preexisting customers compared to 75 percent in the first quarter fiscal 2010. Billings to education customers totaled 56 percent and corporate billings totaled 34 percent of the total billings for the quarter.

Other highlights of the first quarter fiscal 2011 include the company’s announcement of a strategic technology partnership with TechSmith, enabling Camtasia Relay content to now be managed within the Mediasite knowledge management platform. The company also announced it is the first rich media webcasting platform to be certified for deployment on secure military networks by the US Department of Defense.

"We are delighted to kick off 2011 with another positive operating quarter and further demonstration of company growth across our multiple business lines. Our strategy continues to extend the value of Mediasite product and services technologies to a broadening customer base," said Rimas Buinevicius, chairman and CEO of Sonic Foundry. "We have expended a great deal of effort and attention towards technology development as well as partnering, when it makes sense, so that a broader universe of customers is able to harness the power of Mediasite for their specific value creation needs. Sonic Foundry remains on the cusp of a growing and rapidly changing market that continues to expand its adoption of online rich media for a variety of education and training applications."

3:30 p.m. CT 4:30 p.m. ET Mediasite www.sonicfoundry.com/q1

EXPLANATION OF NON-GAAP MEASURES

To supplement our financial results presented on a GAAP basis, we use a measure of non-GAAP net income or loss in our financial presentation, which excludes certain non-cash costs and includes certain cash billings not recognized as revenue for GAAP purposes. Our non-GAAP financial measure is not meant to be considered in isolation or as a substitute for comparable GAAP measures, and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. Our management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our business and make operating decisions. These non-GAAP measures are among the factors management uses in planning for and forecasting future periods. Our non-GAAP financial measures reflect adjustments based on the following items:

  • Billings not recorded as revenue: We have included the cash effect of billings not recorded as revenue, which are deferred for GAAP purposes, in arriving at non-GAAP net income or loss. Our services are typically billed and collected in advance of providing the service which requires minimal cost to perform in the future. Billings are a better indicator of customer activity and cash flow than revenue is, in management’s opinion, and is therefore used by management as a key operational indicator.
  • Depreciation and amortization of intangible and other assets expenses: We have excluded the effect of depreciation and amortization of assets from our non-GAAP net income or loss. Amortization of intangible assets expense varies in amount and frequency and it is significantly affected by the timing and size of our acquisitions. Depreciation and amortization of asset costs is a non-cash expense that includes the periodic write-off of tooling, product design and other assets that contributed to revenues earned during the periods presented and will contribute to future period revenues as well.
  • Non-cash provision for income taxes: We have excluded the impact of the provision for income taxes from our non-GAAP net income or loss. The provision for income taxes is associated with the difference in treatment of goodwill which is not expensed for GAAP purposes but is amortized over a fifteen year life for Federal income tax purposes. The result is a non-cash expense and liability that will never be paid.
  • Stock-based compensation expenses: We maintain an employee qualified stock option plan under which we grant options to acquire common stock to eligible employees. We also maintain an employee stock purchase plan under which common stock may be issued to eligible employees at a reduced price. Stock-based compensation expenses are recorded for these plans in accordance with FASB Accounting Standards Codification subtopic 718, Compensation-Stock Compensation. Stock-based compensation expense is a non-cash expense. As a result, we have excluded the effect of stock-based compensation expenses from our non-GAAP net income or loss.

About Sonic Foundry®, Inc.

www.sonicfoundry.com

Certain statements contained in this news release regarding matters that are not historical facts may be forward-looking statements. Because such forward-looking statements include risks and uncertainties, actual results may differ materially from those expressed in or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, uncertainties pertaining to continued market acceptance for Sonic Foundry’s products, its ability to succeed in capturing significant revenues from media services and/or systems, the effect of new competitors in its market, integration of acquired business and other risk factors identified from time to time in its filings with the Securities and Exchange Commission.

Sonic Foundry, Inc.

Conde nsed Consolidated Balance Sheets

(in thousands, except for share data)

(Unaudited)

December 31,

2010

September 30, 2010

Assets

Current assets:

Cash and cash equivalents

$       3,885

$       3,358

    Accounts receivable, net of allowance of $90 and $105

4,372

5,038

Inventories

811

541

Prepaid expenses and other current assets

491

433

     Total current assets

9,559

9,370

Property and equipment:

Leasehold improvements

980

980

Computer equipment

2,938

2,597

Furniture and fixtures

461

461

Total property and equipment

4,379

4,038

Less accumulated depreciation

2,960

2,801

Net property and equipment

1,419

1,237

Other assets:

Goodwill

7,576

7,576

Other intangibles, net of amortization of $84 and $71

71

84

Total assets

$     18,625

$      18,267

Liabilities and stockholders’ equity

Current liabilities:

Revolving line of credit

$              –

$               –

Accounts payable

866

1,138

Accrued liabilities

984

752

Unearned revenue

5,245

5,486

Current portion of notes payable

665

552

    Total current liabilities

7,760

7,928

Long-term portion of unearned revenue

481

587

Long-term portion of notes payable

859

1,040

Other liabilities

64

85

Deferred tax liability

1,550

1,490

Total liabilities

10,714

11,130

Stockholders’ equity:

Preferred stock, $.01 par value, authorized 500,000 shares; none issued and outstanding

5% preferred stock, Series B, voting, cumulative, convertible, $.01 par value (liquidation preference at par), authorized 1,000,000 shares, none issued and outstanding

Common stock, $.01 par value, authorized 10,000,000 shares; 3,701,298 and 3,650,823 shares issued and 3,688,582 and 3,638,107 shares outstanding

37

37

Additional paid-in capital

186,524

185,973

Accumulated deficit

(178,455)

(178,678)

Receivable for common stock issued

(26)

(26)

Treasury stock, at cost, 12,716 shares

(169)

(169)

    Total stockholders’ equity

7,911

7,137

Total liabilities and stockholders’ equity

$     18,625

$      18,267

Sonic Foundry, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except for share and per share data)

(Unaudited)

Three Months Ended December 31,

2010

2009

Revenue:

Product

$        2,844

$        1,928

Services

3,025

2,548

Other

61

26

Total revenue

5,930

4,502

Cost of revenue:

Product

1,350

830

Services

319

190

Total cost of revenue

1,669

1,020

Gross margin

4,261

3,482

Operating expenses:

Selling and marketing

2,462

2,218

General and administrative

619

803

Product development

834

711

Total operating expenses

3,915

3,732

Income (loss) from operations

346

(250)

Other expense, net

(63)

(10)

Income (loss) before income taxes

283

(260)

Provision for income taxes

(60)

(60)

Net income (loss)

$         223

$         (320)

Net income (loss) per common share:

   – basic

$        0.06

$        (0.09)

   – diluted

$        0.06

$        (0.09)

Weighted average common shares

   – basic

3,654,751

3,606,922

   – diluted

3,875,483

3,606,922

Non-GAAP Consolidated Statements of Operations

(in thousands, except for per share data)

Fiscal Quarter Ended

December 31, 2010

Fiscal Quarter Ended

December 31, 2009

GAAP

Adj(1)

Non-GAAP

GAAP

Adj(1)

Non-GAAP

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