Sonic Foundry Reports Third Quarter 2007 Results

 GAAP revenue increased to $4.7 million, 31 percent year-over-year growth

– Total billings reached $5.9 million, 56 percent increase over third quarter last year

– GAAP EPS loss of $(0.04), non-GAAP EPS loss of $(0.03)

MADISON, Wis., July 30 /PRNewswire-FirstCall/ — Sonic Foundry(R) Inc. (NASDAQ:SOFO) , a leader in automated rich media communications technology, today announced that total Q3 2007 GAAP revenues were up 31 percent to $4.70 million, compared with the same quarter last year. GAAP net loss for the quarter was $1.59 million or 4 cents per diluted share, compared to 2 cents per share in Q3 2006. Non-GAAP net loss was $1.22 million or 3 cents per share, which primarily excludes from the GAAP figure all non-cash related expenses of stock compensation, depreciation and amortization. A reconciliation between GAAP and non-GAAP results is provided at the end of this press release. Total quarterly billings, which include deferred revenues related to services, software-as-a-service sales (SaaS) and support fees were $5.93 million, an increase of 56 percent from Q3 2006.

“Our billings for the quarter, which reflect current as well as future GAAP revenues, accelerated once again and reflect the continued diversification of our revenue streams,” said Sonic Foundry chairman and CEO Rimas Buinevicius. “In addition to support and maintenance fees, our hosting fees and software-as-a-service revenues continue to build as a higher percentage of our overall business. Coupled with this, we witnessed strong seasonal licensed software revenues from our education customers.”

Service billings, comprised of SaaS and support contracts, installation, training, rental, event and content hosting services, were $2.17 million, approximately 38 percent of net billings for the quarter and an increase of 136 percent over the $918,000 the company billed in the third quarter of fiscal 2006. Hosting and event billings increased significantly to $703,000 from $146,000 in the third quarter of fiscal 2006. At June 30, 2007, an accumulated $3.12 million of unearned revenue was billed and deferred for services to be recognized in upcoming quarters.

As reported previously, the company expected sales to higher education customers to contribute strongly to the third quarter. Education institutions represented 58 percent of the customer mix followed by corporations at 26 percent and government at 8 percent. Key customer acquisitions included multiple law and business schools (Florida State University, New York Law School, Washington University of St. Louis, University of Chicago Graduate School of Business, University of Colorado – Leeds School of Business); international education leaders (University of Central England, Royal Holloway University); state government agencies (California Department of Health Services, New York State Controller, South Africa National Institute for Communicable Diseases, Tennessee Department of Finance and Administration); premier health facilities (Ochsner Clinic, Phoenix Children’s Hospital); and top corporations (Accenture, Bristol Myers Squibb, Dell, Esker, Sub-Zero, Weyerhaeuser).

During the quarter, the company continued establishing enterprise agreements with strategic customers who plan to expand their overall footprint for webcasting, content management and advanced search technology. In addition, the company is now engaged with its first customers seeking search services, including the automatic tagging, managing and accessing of rich media information within their growing content repositories. Increases in operating expenses were largely due to these up front investments in new product and service offerings, additional recruitment of technical personnel and continued growth in the sales and marketing organization.

Total gross margins for the third quarter of fiscal 2007 were 74 percent compared to 78 percent in the previous year. “Our gross margins were slightly lower in the quarter, primarily because of higher licensed software and recorder sales to enterprise accounts, while a significant portion of higher margin service fees was deferred”, said Ken Minor, Sonic Foundry chief financial officer. “Future quarterly gross margins should increase as service revenues are recognized at a greater percentage, and operating cash flow in our business model is expected to benefit from up front collections on billings related to yearly service contracts.”

During the third quarter, the company introduced the Mediasite Now pilot program, a SaaS offering that enables organizations to begin mediasiting presentations and courses more rapidly, avoiding IT challenges, network infrastructure issues and the time and expense of data center management and associated personnel costs. Through this hosted model, the company provides preconfigured rich media recorders and access to Sonic Foundry’s hosted content management system on a yearly subscription basis. As part of this services growth, the company also forged marketing partnerships with leading vertical publications and associations including the Chronicle of Higher Education, Oracle Development Tools User Group and National Association of State CIOs. Sonic Foundry is now hosting over 90 customers, a 60 percent increase in the last three months.

“Over the course of 2007, we extended the scope of our offerings to meet the demands of our growing customer base,” said Buinevicius. “We are building our business around our customers’ expanding needs, a strategy that has resulted in hosting capabilities in addition to licensed software and appliances. Likewise, we are now honing our rich media search offering with our first customers, working together to better structure and search their knowledge libraries like never before. We expect continued growth in the scope and scale of both our products and services as demand for rich media communications continues to rise.”

Sonic Foundry will host a Mediasite webcast today to discuss its third quarter 2007 results at 3:30 p.m. CT/4:30 p.m. ET. It will use Mediasite to webcast the presentation for both live and on-demand viewing. To access the presentation, go to An archive of the webcast will be available for 30 days.


To supplement our financial results presented on a GAAP basis, we use the measure of non-GAAP net loss in our financial presentation, which exclude certain non-cash costs. These costs include stock-based compensation which we believe is helpful in understanding our past financial performance and our future results. 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, as well as the related income tax effects:

   —   Stock-based compensation expenses: We adopted FASB Statement No.
123R, Share-Based Payments, on October 1, 2005, under the modified
prospective method. Statement 123R requires us to record non-cash
operating expenses associated with stock option awards at their
estimated fair values. Prior to our Statement 123R adoption, we were
required to record stock-based compensation expenses at intrinsic
value, which was zero since we only issue stock options at the
market price of our stock on the date issued. In accordance with the
modified prospective method, our financial statements for prior
periods have not been restated to reflect, and do not include, the
changes in methodology to expense options at fair values in
accordance with Statement 123R. Stock-based compensation is a key
incentive offered to our employees. We believe such compensation
contributed to the revenues earned during the periods presented and
also believe it will contribute to the generation of future period
revenues. As a result, we continue to evaluate our business
performance excluding stock-based compensation expenses.
— Depreciation and amortization of intangible and other assets
expenses: We have excluded the effect of depreciation and
amortization of assets from our pro-forma net 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.
Amortization expenses will recur in future periods.

About Sonic Foundry(R), Inc.

Founded in 1991, Sonic Foundry (NASDAQ:SOFO) is a technology leader in the emerging rich media communications marketplace, providing enterprise solutions and services that link an information driven world. Ziff Davis Media’s Baseline Magazine named Sonic Foundry to its list of the top ten fastest-growing software companies with sales under $150 million. Sonic Foundry is changing the way organizations communicate via the Web and how people around the globe receive vital information needed for work, professional advancement, safety and education. The company’s integrated Webcasting and Web presentation solutions are trusted by Fortune 500 companies, education institutions and government agencies for a variety of critical communication needs. Sonic Foundry is based in Madison, WI. For more information about Sonic Foundry, visit the company’s Website at

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.
Consolidated Balance Sheets
(in thousands, except for share data)
June 30, September 30,
2007 2006
Current assets:
Cash and cash equivalents $8,354 $2,751
Accounts receivable, net of allowances
of $260 and $160 5,679 3,442
Inventories 85 398
Prepaid expenses and other current assets 1,103 399
Total current assets 15,221 6,990
Property and equipment:
Leasehold improvements 975 893
Computer equipment 2,295 2,275
Furniture and fixtures 461 422
Total property and equipment 3,731 3,590
Less accumulated depreciation 1,392 1,296
Net property and equipment 2,339 2,294
Other assets:
Goodwill and other intangibles, net of
amortization of $1,401 and $1,346 7,599 7,628
Total assets $25,159 $16,912

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $1,465 $1,521
Accrued liabilities 1,115 1,225
Unearned revenue 3,122 2,005
Current portion of notes payable 342 –
Current portion of capital lease obligation 44 41
Total current liabilities 6,088 4,792

Long-term portion of capital lease obligation 107 78
Long-term portion of notes payable 630 –
Other liabilities 371 441
Total liabilities 7,196 5,311

Stockholders’ equity:
Preferred stock, $.01 par value, authorized
5,000,000 shares; none issued and outstanding – –
5% preferred stock, Series B, voting,
cumulative, convertible, $.01 par value
(liquidation preference at par), authorized
10,000,000 shares, none issued and outstanding – –
Common stock, $.01 par value, authorized
100,000,000 shares; 35,657,337 and 32,266,217
issued and 35,530,170 and 32,195,967
outstanding at June 30, 2007 and September 30,
2006, respectively 357 322
Additional paid-in capital 183,292 172,033
Accumulated deficit (165,491) (160,560)
Receivable for common stock issued (26) (26)
Treasury stock, at cost, 127,167 shares at
June 30, 2007, and 70,250 shares at
September 30, 2006 (169) (168)
Total stockholders’ equity 17,963 11,601
Total liabilities and stockholders’ equity $25,159 $16,912

Sonic Foundry, Inc.
Consolidated Statements of Operations
(in thousands, except for share and per share data)

Three Months Ended Nine Months Ended
June 30, June 30,
2007 2006 2007 2006

Product $3,544 $2,967 $9,028 $6,601
Services 1,148 663 2,939 1,730
Other 10 17 29 141
Total revenue 4,702 3,647 11,996 8,472
Cost of revenue:
Product 1,095 812 2,628 2,233
Services 131 – 262 –
Total cost of revenue 1,226 812 2,890 2,233
Gross margin 3,476 2,835 9,106 6,239

Operating expenses:
Selling and marketing
expenses 3,353 2,101 8,900 5,569
General and
administrative expenses 952 744 3,027 2,206
Product development
expenses 837 593 2,318 1,671
Total operating
expenses 5,142 3,438 14,245 9,446
Loss from operations (1,666) (603) (5,139) (3,207)

Other income, net 77 20 208 65
Net loss $(1,589) $(583) $(4,931) $(3,142)

Net loss per common share:
– basic and diluted $(0.04) $(0.02) $(0.14) $(0.10)

Weighted average
common shares
– basic and
diluted 35,504,939 31,994,713 34,400,290 31,663,048

Q3 Fiscal 2007 Financial Results
Non-GAAP Consolidated Statements of Operations
(in thousands)

Three Months Ended Three Months Ended
June 30, June 30,
2007 2007 2006 2006
GAAP Adj(1) Non-GAAP GAAP Adj(1) Non-GAAP

Revenues $4,702 – $4,702 $3,647 – $3,647

Cost of revenue 1,226 – 1,226 812 (92) 720

Total Operating
expenses 5,142 (365) 4,777 3,438 (196) 3,242

income (1,666) 365 (1,301) (603) 288 (315)

Other income 77 – 77 20 – 20

Net income $(1,589) $365 $(1,224) $(583) $288 $(295)

Diluted earnings
per share $(0.04) $0.01 $(0.03) $(0.02) $0.01 $(0.01)

(1) Adjustments consist of the following:

(in COGS) – 92

(in G&A) 1 –

(in G&A) 161 92
compensation(2) 203 104

Total non-GAAP
adjustments 365 288

(2) Stock-based compensation is included in the following GAAP operating

Three Months Ended Three Months Ended
June 30, June 30,
2007 2007 2006 2006

Sales and
marketing 129 (129) – 63 (63) –
Research and
development 46 (46) – 27 (27) –
General and
administrative 28 (28) – 14 (14) –

Total stock-based
compensation 203 (203) – 104 (104) –

First Call Analyst:
FCMN Contact:

Source: Sonic Foundry Inc.