SONIC FOUNDRY INC - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - May 12, 2016

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Sonic Foundry Announces Fiscal 2016 Second Quarter Financial Results

MADISON, Wis. - May 12, 2016 - Sonic Foundry, Inc. (NASDAQ: SOFO), the trusted leader for video creation and management solutions, today announced consolidated financial results for its fiscal 2016 second quarter ended March 31, 2016.

Fiscal 2016 Second Quarter Highlights
•
Billings grew 12% to $10.1 million, compared to $9.1 million in the second quarter of 2015
•
Revenue of $9.6 million represented an increase of 19% over $8.1 million in the second quarter of 2015
•
Gross margin increased to $7.3 million, or 76% of sales compared to $6.2 million, or 77% of sales for the second quarter of 2015
•
Net loss of $711,000 or $(0.16) per share compared to a net loss of $1.4 million or $(0.31) per share in the second quarter of 2015
•
Adjusted EBITDA of $461,000 compared to loss of $301,000 in the second quarter of 2015, representing a positive swing of $762,000 year-over-year
•
Unearned revenue from services and products increased $2.7 million, or 27% to $12.6 million as of the end of second quarter 2016, compared to $9.9 million for the same period last year

Fiscal 2016 Second Quarter Review
Robust international billings accounted for 53 percent of Sonic Foundry’s consolidated product and services billings overall. Performance in those segments were positively impacted by distribution activity and the growth in licensing of software products in China. Also, strong demand in Japan driven in part by corporate training initiatives in highly-regulated industries, such as pharmaceuticals and health. On the domestic side, billings were positively impacted by several new construction projects and refreshes in higher education, and the expansion of new and repeat conferences in our events business.

The company had $12.6 million in unearned revenue at March 31, 2016, of which $3.9 million is expected to be recorded as revenue in the third quarter of fiscal 2016. Additionally there was a single international transaction of $2.1 million which was billed in September 2015, but did not meet the criteria for revenue recognition as of March 31, 2016. The company expects to record this revenue in the third quarter or soon thereafter. The remaining unearned revenue is a result of increased billings for services, which are recognized as revenues over the life of the respective contract terms. Consolidated gross margin of 76%, one percentage point below the same period last year, was led by greater software sales and efficiencies in our events business. The company reported a net loss of $711,000 for the quarter and Adjusted EBITDA income of $461,000, which included continued year-over-year cost containment strategies in operating expenses and improved revenues year-over-year.

“We’re pleased with our results this quarter, including significant improvements to adjusted EBITDA and nearly every other measure of year-over-year operating performance. Our ability to execute consistently across key verticals and geographies was driven by continued demand for our best-of-breed video solutions, winning larger and more strategic deals in higher education, and the diversification of our product to reach new markets,” said Gary Weis, chief executive officer of Sonic Foundry.

“Going forward we will build on several key partnership initiatives which are already producing strong early results, including strategic reseller partnerships in Japan with companies such as Sony, IMS Health, Toshiba, Hitachi Cable Network and NTT, and the Riverbed technology alliance which is proving to offer great value to our enterprise customers,” Weis continued. “While we expect to see the typical seasonally-strong demand in the second-half of the fiscal year, our pipeline suggests a smoothing of demand between our fiscal third and fourth quarters. I remain confident our end-to-end video solution and commitment to innovation positions Sonic Foundry to continue the momentum of the first half of the year, and puts us on track to increase shareholder value.”

Outlook
The company is reiterating the fiscal 2016 guidance of billings between $42 and $45 million, adjusted EBITDA of between $3.5 and $4.5 million and net income between breakeven and $1.0 million.

Non-GAAP Financial Information
To 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 includes 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 loss to adjusted




EBITDA for the quarters ended March 31, 2016 and 2015 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.

Webcast
Sonic Foundry will host a corporate webcast today, May 12th, for analysts and investors to discuss its fiscal 2016 second quarter results at 3:30 p.m. CT / 4:30 p.m. ET. It will use its patented rich media communications system, Mediasite, to webcast the presentation for both live and on-demand viewing. To access the presentation, register at www.sonicfoundry.com/earnings. Management will be taking questions live via the comment feature of the Mediasite player. An archive of the webcast will be available for 90 days.

About Sonic Foundry®, Inc.
Sonic Foundry (NASDAQ: SOFO) is the trusted global leader for video capture, management and webcasting solutions in education, business and government. The patented Mediasite Enterprise Video Platform transforms communications, training, education and events for more than 3,800 customers in over 65 countries. Sonic Foundry is a leader in Aragon Research’s Globe for Video Content Management, Frost & Sullivan’s lecture capture leader for seven consecutive years, a leader in Forrester’s Enterprise Video Platforms and Webcasting Wave and a challenger in Gartner’s Magic Quadrant for enterprise video content management.

© 2016 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.

Contacts:

Media:
Tammy Jackson
Director of Communications
Sonic Foundry
608.770.9052

Investor:
Peter Seltzberg, Managing Director
Darrow Associates, Inc.
1951 Lowell Lane
Merrick, NY 11566
516-419-9915
pseltzberg@darrowir.com
www.darrowir.com













Sonic Foundry, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except for share data)
(Unaudited)
 
March 31,
2016
 
September 30,
2015
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,884

 
$
1,976

Accounts receivable, net of allowances of $100 and $150
10,751

 
12,659

Inventories
2,103

 
2,385

Prepaid expenses and other current assets
1,107

 
927

Total current assets
15,845

 
17,947

Property and equipment:
 
 
 
Leasehold improvements
936

 
904

Computer equipment
6,147

 
5,852

Furniture and fixtures
1,031

 
837

Total property and equipment
8,114

 
7,593

Less accumulated depreciation and amortization
5,635

 
4,785

Property and equipment, net
2,479

 
2,808

Other assets:
 
 
 
Goodwill
11,024

 
10,853

Customer relationships, net of amortization of $590 and $457
1,852

 
1,872

Software development costs, net of amortization of $518 and $429
15

 
104

Product rights, net of amortization of $226 and $164
446

 
508

Other intangibles, net of amortization of $226 and $190
86

 
112

Other long-term assets
547

 
599

Total assets
$
32,294

 
$
34,803

Liabilities and stockholders’ equity
 
 
 
Current liabilities:
 
 
 
Revolving line of credit
$
1,358

 
$
1,818

Accounts payable
906

 
2,026

Accrued liabilities
1,815

 
1,666

Unearned revenue
10,426

 
11,359

Current portion of capital lease and financing arrangements
268

 
211

Current portion of notes payable, net of discounts
1,579

 
1,299

Current portion of subordinated note payable
94

 
186

Total current liabilities
16,446

 
18,565

Long-term portion of unearned revenue
2,220

 
1,325

Long-term portion of capital lease and financing arrangements
257

 
196

Long-term portion of notes payable and warrant debt, net of discounts
1,645

 
2,080

Long-term portion of subordinated note payable
—

 
92

Derivative liability, at fair value
92

 
109

Other liabilities
270

 
311

Deferred tax liability
4,450

 
4,322

Total liabilities
25,380

 
27,000

Commitments and contingencies
 
 
 
Stockholders’ equity:
 
 
 
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; 4,413,499 and 4,376,456 shares issued and 4,400,783 and 4,363,740 shares outstanding, respectively
44

 
44

Additional paid-in capital
196,689

 
195,973

Accumulated deficit
(188,815
)
 
(186,897
)
Accumulated other comprehensive loss
(809
)
 
(1,122
)
Receivable for common stock issued
(26
)
 
(26
)
Treasury stock, at cost, 12,716 shares
(169
)
 
(169
)
Total stockholders’ equity
6,914

 
7,803

Total liabilities and stockholders’ equity
$
32,294

 
$
34,803








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

 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2016
 
2015
 
2016
 
2015
Revenue:
 
 
 
 
 
 
 
Product
$
4,112

 
$
3,215

 
7,903

 
$
6,589

Services
5,403

 
4,805

 
10,602

 
10,049

Other
97

 
86

 
198

 
209

Total revenue
9,612

 
8,106

 
18,703

 
16,847

Cost of revenue:
 
 
 
 
 
 
 
Product
1,410

 
1,260

 
3,275

 
2,888

Services
929

 
630

 
1,775

 
1,673

Total cost of revenue
2,339

 
1,890

 
5,050

 
4,561

Gross margin
7,273

 
6,216

 
13,653

 
12,286

Operating expenses:
 
 
 
 
 
 
 
Selling and marketing
4,467

 
4,311

 
8,879

 
8,705

General and administrative
1,376

 
1,433

 
2,847

 
2,803

Product development
1,644

 
1,544

 
3,258

 
3,077

Total operating expenses
7,487

 
7,288

 
14,984

 
14,585

Loss from operations
(214
)
 
(1,072
)
 
(1,331
)
 
(2,299
)
Non-operating income (expenses):
 
 
 
 
 
 
 
Interest expense, net
(154
)
 
(66
)
 
(303
)
 
(129
)
Other income (expense), net
(61
)
 
(4
)
 
4

 
164

Total non-operating income (expenses)
(215
)
 
(70
)
 
(299
)
 
35

Loss before income taxes
(429
)
 
(1,142
)
 
(1,630
)
 
(2,264
)
Provision for income taxes
(282
)
 
(208
)
 
(288
)
 
(118
)
Net loss
$
(711
)
 
$
(1,350
)
 
$
(1,918
)
 
$
(2,382
)
Loss per common share:
 
 
 
 
 
 
 
– basic
$
(0.16
)
 
$
(0.31
)
 
$
(0.44
)
 
$
(0.55
)
– diluted
$
(0.16
)
 
$
(0.31
)
 
$
(0.44
)
 
$
(0.55
)
Weighted average common shares
 
 
 
 
 
 
 
– basic
4,379,943

 
4,348,511

 
4,371,797

 
4,309,776

– diluted
4,379,943

 
4,348,511

 
4,371,797

 
4,309,776






Sonic Foundry, Inc.
Consolidated Adjusted EBITDA Reconciliation
(in thousands)
(Unaudited)

 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
Net loss
$
(711
)
 
$
(1,350
)
 
$
(1,918
)
 
$
(2,382
)
Add:
 
 
 
 
 
 
 
   Depreciation and amortization
549

 
553

 
1,085

 
1,114

   Income tax expense
282

 
208

 
288

 
118

   Interest expense
154

 
66

 
303

 
129

   Stock-based compensation expense
187

 
222

 
521

 
538

Adjusted EBITDA
$
461

 
$
(301
)
 
$
279

 
$
(483
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





Sonic Foundry, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
 
Six Months Ended
March 31,
 
2016
 
2015
Operating activities
 
 
 
Net loss
$
(1,918
)
 
$
(2,382
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
 
 
Amortization of other intangibles
170

 
180

Amortization of software development costs
89

 
89

Amortization of product rights
62

 
62

Amortization of debt discount
41

 
—

Depreciation and amortization of property and equipment
801

 
783

Provision for doubtful accounts
(50
)
 
30

Deferred taxes
178

 
3

Stock-based compensation expense related to stock options
521

 
538

Remeasurement gain on subordinated debt
(2
)
 
(212
)
Remeasurement gain on derivative liability
(33
)
 
—

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
2,077

 
157

Inventories
284

 
(526
)
Prepaid expenses and other current assets
(61
)
 
(191
)
Accounts payable and accrued liabilities
(1,002
)
 
(868
)
Other long-term liabilities
(43
)
 
(43
)
Unearned revenue
(73
)
 
78

Net cash provided by (used in) operating activities
1,041

 
(2,302
)
Investing activities
 
 
 
Purchases of property and equipment
(149
)
 
(465
)
Net cash used in investing activities
(149
)
 
(465
)
Financing activities
 
 
 
Proceeds from notes payable
500

 
833

Proceeds from line of credit
5,445

 
5,027

Payments on notes payable
(862
)
 
(2,417
)
Payments on line of credit
(5,932
)
 
(2,800
)
Payment of debt issuance costs
(10
)
 
(30
)
Proceeds from issuance of common stock and warrants
31

 
663

Proceeds from exercise of common stock options
—

 
8

Payments on capital lease and financing arrangements
(129
)
 
(120
)
Net cash provided by (used in) financing activities
(957
)
 
1,164

Changes in cash and cash equivalents due to changes in foreign currency
(27
)
 
(131
)
Net decrease in cash and cash equivalents
(92
)
 
(1,734
)
Cash and cash equivalents at beginning of period
1,976

 
4,344

Cash and cash equivalents at end of period
$
1,884

 
$
2,610




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