Sonic Foundry Announces Fiscal 2020 Second Quarter Financial Results

Company Converts $5.6 Million of Secured Debt into Equity at $5 Per Share
MADISON, Wis., May 14, 2020 (GLOBE NEWSWIRE) — Sonic Foundry, Inc. (OTC Pink Sheets: SOFO), a trusted leader for video creation and management solutions, today announced consolidated financial results for its fiscal 2020 second quarter ended March 31, 2020.Fiscal 2020 Second Quarter HighlightsBillings totaled $9.8 million in the second quarter of 2020; an increase of 31 percent compared to the same period last yearTotal revenues of $8.7 million compared to $8 million in the second quarter of 2019, a nine percent increaseGross margin was $6.3 million, or 72 percent of sales, compared to $6 million, or 75 percent of sales, in the second quarter of 2019Net income attributable to common stockholders of $95,000, or $0.01 per share, compared to $(1.5) million, or $(0.29) per share, in the second quarter of 2019Adjusted EBITDA was $767,000 compared to $(784,000) in the second quarter of 2019Unearned revenue was $11.5 million as of March 31, 2020 and September 30, 2019Fiscal 2020 Second Quarter ReviewProduct billings were $3 million during the second quarter of fiscal year 2020 compared to $2.1 million in the same quarter last year. This uptick is due to two factors: first, a large customer refreshed its recorders in the quarter and second, the prior year quarter was impacted by the company’s planned reduction of distribution inventory, which reduced product billings and revenue by $645,000. Service billings, including support, hosting, events and installs were $6.8 million, compared to $5.3 million in the prior year. A large portion of that year-over-year increase, $1 million, is due to a large custom cloud migration project for a customer in the United Kingdom.  While service billings increased in all other categories, our events business was negatively impacted by cancellations due to COVID-19.  Our new virtual event offerings allowed us to partially offset the financial consequences.The company expects to recognize $3.6 million of the current unearned revenue in the third quarter of fiscal 2020. Recurring revenue of $6.7 million was 77 percent of total revenue in the second quarter of 2020, compared to $6.7 million, or 84 percent of total revenue, in the second quarter of 2019.Cost reduction measures taken in the second half of the last fiscal year have resulted in a $1.4 million, or 19 percent, decrease in operating expenses in the second quarter of 2020 compared to the same period in 2019.“I’m very pleased with our financial performance for the quarter and in particular the significant improvement in our bottom line. We laid the groundwork before the effects of COVID-19 began to spread, including our initiative to move more customers to the cloud. Working with a large customer to implement a custom cloud project illustrates our efforts are paying off,” said Michael Norregaard, CEO of Sonic Foundry.He continued, “In today’s uncertain environment, we understand how critical the ability to communicate with video is to our customers in the industries they serve, and we will continue to do our best to meet the new challenges they face by strengthening our services and product offerings. The efforts we undertook last year to improve our execution and reduce operational expenses will be beneficial as we go forward.”Conversion of $5.6 Million of Secured Debt into Equity at $5 Per ShareThe company also announced it has agreed to convert $5.6 million of existing secured debt to Mark Burish, the company’s Chairman, into shares of its common stock at $5 per share. The transaction was recommended by the company’s Special Committee of Independent and Disinterested Directors and unanimously approved by all disinterested directors of the company. As previously announced, the debt originated in March 2019 when Mr. Burish loaned $5 million to the company to retire a line of credit that had matured with Silicon Valley Bank. Silverwood Partners, the Special Committee’s financial advisor, issued a fairness opinion in connection with the transaction.Following the previously announced intention to pursue a transaction whereby Mr. Burish would purchase all outstanding shares of common stock not presently held by Mr. Burish at $5.00 per share, a number of shareholders advised that they were opposed to the transaction and that opportunities available to the company now, in view of the distance learning environment occasioned by the COVID virus crisis, may provide pathways to achieve greater value.  Concerned that a proposal would not obtain the required shareholder approval, the company and Mr. Burish agreed to not pursue the transaction at this time, and instead pursue other strategic alternatives to enhance both company and shareholder value, improve the company’s financial position, and provide the company with resources to further its growth opportunities.David Slayton and Nelson Murphy, members of the Special Committee, said, “We are pleased to announce that we can eliminate $5.6 million in debt, which will significantly strengthen the financial position of the company and allow it to better capitalize on any new market opportunities presented by the needs of higher education, as well as other public and private institutions. We are confident that this will provide the company with greater flexibility to seek to accomplish that goal.”They continued, “Although a thorough process was conducted, no interest was received that was equal to or superior to Mr. Burish’s $5 bid. Nevertheless, we believe it to be in the best interest of the shareholders to better position the company financially to pursue a growth strategy in the dramatically changed market circumstances resulting from the pandemic outbreak.”Sonic Foundry had previously announced that its Special Committee retained Silverwood Partners LLC, a Boston-based investment banking firm specializing in digital media technology, to evaluate strategic alternatives for Sonic Foundry to enhance shareholder value and its Mediasite video streaming and video management solutions business. Gordon Feinblatt LLC, Baltimore, Maryland, was also retained by the Special Committee as its independent legal counsel.Non-GAAP Financial InformationTo 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 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 loss to adjusted EBITDA for the second quarter ended March 31, 2020 and 2019 are included in the release.About Sonic Foundry®, Inc.Sonic Foundry (OTC Pink Sheets:SOFO) is the global leader for video capture, management and streaming solutions. Trusted by more than 5,200 educational institutions, corporations, health organizations and government entities in over 65 countries, its Mediasite Video Platform quickly and cost-effectively automates the capture, management, delivery and search of live and on-demand streaming videos. Learn more at www.sonicfoundry.com and @mediasite.© 2020 Sonic Foundry, Inc. Product and service names mentioned herein are the trademarks of Sonic Foundry, Inc. or their respective owners.Forward Looking StatementsThis 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:
Nicole Wise, Director of Communications
920.226.0269
nicolew@sonicfoundry.comSonic Foundry, Inc.
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