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Sonic Foundry Announces Third Fiscal Quarter 2022 Financial Results

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.

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.

About Sonic Foundry®, Inc.

Sonic Foundry (NASDAQ: SOFO) is the global leader for video capture, management, and streaming solutions as well as virtual and hybrid events. Trusted by thousands of educational institutions, corporations, health organizations and government entities in over 65 countries, Sonic Foundry’s solutions include Mediasite®, Vidable™ and Global Learning Exchange™. Learn more at www.sonicfoundry.com.

© 2022 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.

Sonic Foundry, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except for share data)

(Unaudited)

 

 

 

June 30,

 

 

September 30,

 

 

 

2022

 

 

2021

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,441

 

 

$

9,989

 

Accounts receivable, net of allowances of $53 and $236

 

 

5,165

 

 

 

5,167

 

Inventories, net

 

 

1,065

 

 

 

442

 

Investment in sales-type lease, current

 

 

281

 

 

 

294

 

Capitalized commissions, current

 

 

286

 

 

 

360

 

Prepaid expenses and other current assets

 

 

1,251

 

 

 

1,153

 

Total current assets

 

 

12,489

 

 

 

17,405

 

Property and equipment:

 

 

 

 

 

 

 

 

Leasehold improvements

 

 

1,382

 

 

 

1,111

 

Computer equipment

 

 

9,665

 

 

 

8,527

 

Furniture and fixtures

 

 

1,558

 

 

 

1,528

 

Total property and equipment

 

 

12,605

 

 

 

11,166

 

Less accumulated depreciation and amortization

 

 

8,797

 

 

 

8,368

 

Property and equipment, net

 

 

3,808

 

 

 

2,798

 

Other assets:

 

 

 

 

 

 

 

 

Investment in sales-type lease, long-term

 

 

268

 

 

 

490

 

Capitalized commissions, long-term

 

 

75

 

 

 

76

 

Right-of-use assets under operating leases

 

 

2,182

 

 

 

2,441

 

Deferred tax asset

 

 

400

 

 

 

 

Other long-term assets

 

 

2,014

 

 

 

805

 

Total assets

 

$

21,236

 

 

$

24,015

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

 

1,488

 

 

 

1,072

 

Accrued liabilities

 

 

1,915

 

 

 

2,522

 

Current portion of unearned revenue

 

 

7,463

 

 

 

9,413

 

Current portion of finance lease obligations

 

 

22

 

 

 

79

 

Current portion of operating lease obligations

 

 

1,165

 

 

 

930

 

Current portion of warrant debt

 

 

221

 

 

 

 

Total current liabilities

 

 

12,274

 

 

 

14,016

 

Long-term portion of unearned revenue

 

 

1,274

 

 

 

1,614

 

Long-term portion of finance lease obligations

 

 

17

 

 

 

26

 

Long-term portion of operating lease obligations

 

 

1,102

 

 

 

1,583

 

Long-term portion of notes payable and warrant debt

 

 

294

 

 

 

556

 

Derivative liability, at fair value

 

 

2

 

 

 

53

 

Other liabilities

 

 

97

 

 

 

27

 

Total liabilities

 

 

15,060

 

 

 

17,875

 

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; zero shares 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 25,000,000 shares; 10,878,739 and 9,064,821 shares issued, respectively and 10,866,023 and 9,052,105 shares outstanding, respectively

 

 

109

 

 

 

91

 

Additional paid-in capital

 

 

217,973

 

 

 

213,278

 

Accumulated deficit

 

 

(210,809

)

 

 

(206,442

)

Accumulated other comprehensive loss

 

 

(928

)

 

 

(618

)

Treasury stock, at cost, 12,716 shares

 

 

(169

)

 

 

(169

)

Total stockholders’ equity

 

 

6,176

 

 

 

6,140

 

Total liabilities and stockholders’ equity

 

$

21,236

 

 

$

24,015

 

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,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product and other

 

$

2,238

 

 

$

2,659

 

 

$

6,409

 

 

$

7,406

 

Services

 

 

4,227

 

 

 

6,002

 

 

 

14,552

 

 

 

19,131

 

Total revenue

 

 

6,465

 

 

 

8,661

 

 

 

20,961

 

 

 

26,537

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product and other

 

 

657

 

 

 

1,074

 

 

 

2,266

 

 

 

2,838

 

Services

 

 

1,250

 

 

 

1,548

 

 

 

3,825

 

 

 

4,770

 

Total cost of revenue

 

 

1,907

 

 

 

2,622

 

 

 

6,091

 

 

 

7,608

 

Gross margin

 

 

4,558

 

 

 

6,039

 

 

 

14,870

 

 

 

18,929

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing

 

 

2,865

 

 

 

2,860

 

 

 

9,189

 

 

 

8,765

 

General and administrative

 

 

1,439

 

 

 

1,103

 

 

 

4,505

 

 

 

3,356

 

Product development

 

 

1,924

 

 

 

1,883

 

 

 

5,616

 

 

 

5,355

 

Total operating expenses

 

 

6,228

 

 

 

5,846

 

 

 

19,310

 

 

 

17,476

 

Income (Loss) from operations

 

 

(1,670

)

 

 

193

 

 

 

(4,440

)

 

 

1,453

 

Non-operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(9

)

 

 

10

 

 

 

(22

)

 

 

(42

)

Other expense, net

 

 

(161

)

 

 

19

 

 

 

(189

)

 

 

(8

)

Gain on debt forgiveness

 

 

 

 

 

2,325

 

 

 

 

 

 

2,325

 

Total non-operating expense

 

 

(170

)

 

 

2,354

 

 

 

(211

)

 

 

2,275

 

Income (loss) before income taxes

 

 

(1,840

)

 

 

2,547

 

 

 

(4,651

)

 

 

3,728

 

Income tax benefit (expense)

 

 

337

 

 

 

99

 

 

 

284

 

 

 

(193

)

Net income (loss)

 

$

(1,503

)

 

$

2,646

 

 

$

(4,367

)

 

$

3,535

 

Dividends on preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to common stockholders

 

$

(1,503

)

 

$

2,646

 

 

$

(4,367

)

 

$

3,535

 

Income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income (loss) per common share

 

$

(0.14

)

 

$

0.33

 

 

$

(0.46

)

 

$

0.44

 

Diluted net income (loss) per common share

 

$

(0.14

)

 

$

0.31

 

 

$

(0.46

)

 

$

0.42

 

Weighted average common shares – Basic

 

 

10,528,156

 

 

 

8,060,036

 

 

 

9,573,231

 

 

 

8,021,852

 

– Diluted

 

 

10,528,156

 

 

 

8,545,156

 

 

 

9,573,231

 

 

 

8,480,856

 

Sonic Foundry, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

June 30,

 

 

 

2022

 

 

2021

 

Operating activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(4,367

)

 

$

3,535

 

Adjustments to reconcile net income (loss) to net cash used in operating activities:

 

 

 

 

 

 

 

 

Amortization of other intangible

 

 

 

 

 

42

 

Amortization of warrant debt, debt discount and debt issuance costs

 

 

23

 

 

 

 

Depreciation and amortization of property and equipment

 

 

861

 

 

 

773

 

Deferred income taxes

 

 

(400

)

 

 

 

Loss on sale of fixed assets

 

 

166

 

 

 

6

 

Provision for doubtful accounts

 

 

(50

)

 

 

 

Stock-based compensation expense related to stock options

 

 

609

 

 

 

375

 

Stock issued for board of director fees

 

 

49

 

 

 

40

 

Remeasurement (gain) on derivative liability

 

 

(51

)

 

 

(3

)

Gain on debt forgiveness

 

 

 

 

 

(2,325

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(177

)

 

 

592

 

Inventories

 

 

(634

)

 

 

712

 

Investment in sales-type lease

 

 

128

 

 

 

1

 

Capitalized commissions

 

 

75

 

 

 

171

 

Prepaid expenses and other current assets

 

 

(241

)

 

 

114

 

Right-of-use assets under operating leases

 

 

124

 

 

 

(792

)

Operating lease obligations

 

 

(100

)

 

 

795

 

Other long-term assets

 

 

386

 

 

 

(395

)

Accounts payable and accrued liabilities

 

 

410

 

 

 

(2,042

)

Other long-term liabilities

 

 

91

 

 

 

(106

)

Unearned revenue

 

 

(1,991

)

 

 

(2,290

)

Net cash used in operating activities

 

 

(5,089

)

 

 

(797

)

Investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(2,337

)

 

 

(619

)

Capitalization of software development costs

 

 

(1,681

)

 

 

 

Net cash used in investing activities

 

 

(4,018

)

 

 

(619

)

Financing activities

 

 

 

 

 

 

 

 

Payments on notes payable

 

 

 

 

 

(935

)

Proceeds from exercise of common stock

 

 

3,948

 

 

 

10

 

Proceeds from exercise of common stock options

 

 

107

 

 

 

247

 

Payments on capital lease and financing arrangements

 

 

(62

)

 

 

(98

)

Net cash provided by (used in) financing activities

 

 

3,993

 

 

 

(776

)

Changes in cash and cash equivalents due to changes in foreign currency

 

 

(434

)

 

 

18

 

Net decrease in cash and cash equivalents

 

 

(5,548

)

 

 

(2,174

)

Cash and cash equivalents at beginning of year

 

 

9,989

 

 

 

7,619

 

Cash and cash equivalents at end of year

 

$

4,441

 

 

$

5,445

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

2

 

 

$

32

 

Income taxes paid, foreign

 

 

78

 

 

 

84

 

Non-cash financing and investing activities:

 

 

 

 

 

 

 

 

Property and equipment financed by finance lease or accounts payable

 

 

120

 

 

 

 

 

 

 

 

 

 

 

 

 

Sonic Foundry, Inc.

Consolidated Non-GAAP Adjusted EBITDA Reconciliation

(in thousands)

 

 

 

Three Months

Ended June 30,

 

 

Nine Months Ended

June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net income (loss)

 

$

(1,503

)

 

$

2,646

 

 

$

(4,367

)

 

$

3,535

 

Add:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

327

 

 

 

246

 

 

 

861

 

 

 

784

 

Income tax expense (benefit)

 

 

(337

)

 

 

(99

)

 

 

(284

)

 

 

193

 

Interest expense (income)

 

 

9

 

 

 

(10

)

 

 

22

 

 

 

42

 

Stock-based compensation expense

 

 

200

 

 

 

92

 

 

 

609

 

 

 

375

 

Severance

 

 

54

 

 

 

56

 

 

 

73

 

 

 

157

 

Subtract:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain from debt forgiveness

 

 

-

 

 

 

2,325

 

 

 

-

 

 

 

2,325

 

Adjusted EBITDA

 

$

(1,250

)

 

$

606

 

 

$

(3,086

)

 

$

2,761

 

 

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