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Sonic Foundry Reports Record Third Quarter Fiscal 2011 Results

MADISON, Wis. July 27, 2011 webcasting lecture capture June 30, 2011

GAAP results include:  

  • $7.1 million
  • $4.0 million
  • $3.1 million
    • $1.8 million
    • $1.3 million
  • $5.7 million
  • $212 thousand $0.06 $203 thousand $0.06

Non-GAAP results include:

  • $7.5 million
  • $4.0 million
  • $3.5 million
    • $2.2 million
    • $1.4 million
  • $1.05 million $0.28 $853 thousand $0.24

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.

$18.5 million $15.0 million

$(27) thousand $(456) thousand $429 thousand $411 thousand $(248) thousand $(0.07) $163 thousand $0.06

$1.3 million $951 thousand $3.9 million $2.8 million

$2.2 million September 30, 2011

Third quarter fiscal 2011 total gross margin was 70 percent, compared to 74 percent in Q3-2010. Gross margin continues to be affected by an increase in direct and outsourced event labor costs with lower markups for services which the company does not provide, such as closed captioning. Gross margin was also impacted by a greater volume of discounted upgrade units for customers whose product had reached the end of hardware warranty eligibility and by an increase in high definition material cost. These effects were partially offset by a lesser number of higher quantity transactions with corresponding discount pricing this year than in the prior year.

In the third quarter fiscal 2011 and 2010, 66 percent of billings were to preexisting customers. Billings to education customers totaled 65 percent and corporate billings totaled 28 percent of the total billings for the quarter.

Gary Weis

3:30 p.m. CT 4:30 p.m. ET Mediasite www.sonicfoundry.com/q3

EXPLANATION OF NON-GAAP MEASURES

  • 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.

Condensed Consolidated Balance Sheets

(in thousands, except for share data)

(Unaudited)

June 30,

2011

September 30, 2010

Assets

Current assets:

Cash and cash equivalents

$         4,213

$      3,358

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

6,234

5,038

Inventories

574

541

Prepaid expenses and other current assets

638

433

Total current assets

11,659

9,370

Property and equipment:

Leasehold improvements

980

980

Computer equipment

3,161

2,597

Furniture and fixtures

461

461

Total property and equipment

4,602

4,038

Less accumulated depreciation

3,308

2,801

Net property and equipment

1,294

1,237

Other assets:

Goodwill

7,576

7,576

Other intangibles, net of amortization of $123 and $71

52

84

Total assets

$        20,581

$       18,267

Liabilities and stockholders’ equity

Current liabilities:

Revolving line of credit

$                –

$           –

Accounts payable

1,234

1,138

Accrued liabilities

1,033

752

Unearned revenue

5,251

5,486

Current portion of capital lease obligation

20

Current portion of notes payable

854

552

Total current liabilities

8,392

7,928

Long-term portion of unearned revenue

491

587

Long-term portion of capital lease

42

Long-term portion of notes payable

656

1,040

Other liabilities

21

85

Deferred tax liability

1,670

1,490

Total liabilities

11,272

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; 3,818,563 and 3,650,823 shares issued and 3,805,847 and 3,638,107 shares outstanding

38

37

Additional paid-in capital

187,981

185,973

Accumulated deficit

(178,515)

(178,678)

Receivable for common stock issued

(26)

(26)

Treasury stock, at cost, 12,716 shares

(169)

(169)

Total stockholders’ equity

9,309

7,137

Total liabilities and stockholders’ equity

$       20,581

$       18,267

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,

2011

2010

2011

2010

Revenue:

Product

$3,911

$3,055

$9,386

$7,492

Services

3,108

2,525

8,972

7,439

Other

71

46

187

106

Total revenue

7,090

5,626

18,545

15,037

Cost of revenue:

Product

1,848

1,254

4,489

3,198

Services

314

189

997

498

Total cost of revenue

2,162

1,443

5,486

3,696

Gross margin

4,928

4,183

13,059

11,341

Operating expenses:

Selling and marketing

2,984

2,504

7,889

7,042

General and administrative

720

572

2,056

1,969

Product development

863

777

2,559

2,293

Total operating expenses

4,567

3,853

12,504

11,304

Income from operations

361

330

555

37

Other expense, net

(89)

(67)

(212)

(105)

Income (loss) before income taxes

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