MADISON, Wis. -- (BUSINESS WIRE) -- Sonic Foundry, Inc. (NASDAQ: SOFO), the trusted leader for video creation and management solutions, today announced financial results for its fiscal 2014 second quarter ended March 31, 2014, including results of the recently completed acquisitions of Mediasite KK and MediaMission BV.
GAAP results include:
Non-GAAP results include:
Non-GAAP net income primarily excludes all non-cash related expenses of stock compensation, acquisition costs, one time patent charges, net step up gain on investment in MSKK, depreciation and 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.
At March 31, 2014, $8.8 million of revenue was deferred, of which the company expects to realize approximately $3.2 million in the quarter ending June 30, 2014 from services. Revenue from service contracts is recognized over the life of the contract. Services revenue includes Mediasite customer support contracts as well as training, installation, rental, event and content hosting services.
We entered into a contract with Leeds University during the quarter, delivered over 100 recorders and began work on making some modest modifications to our solution required by Leeds. As a result we did not record any revenue associated with the $1.05 million billed during the second quarter, despite receipt of cash in April 2014 for the majority of what was billed during the second quarter. We expect to bill the remainder in Q3-2014, deliver more than 100 additional recorders and complete the modifications in Q4-2014. We expect all revenue associated with the project to be recorded during the 2014 fiscal year.
During the second quarter of this fiscal year for Sonic Foundry only, 66 percent of billings were to existing customers, compared to 86 percent in the second quarter fiscal 2013, with 68 percent to education customers and 19 percent to corporate. A significant transaction with a new customer - the University of Leeds had a significant impact on both the percentage of billings coming from existing customers as well as the percentage of billings from international.
International product and service consolidated billings accounted for 57 percent of overall billings, compared to 33 percent (Sonic Foundry only) in the second quarter of fiscal 2013.
The acquisition of Mediasite KK (“MSKK”) was completed effective January 14, 2014 and therefore had no impact, other than transaction costs and equity income, on the quarter ended December 31, 2013. Prior to completion of the acquisition of MSKK, the Company owned a minority interest of approximately 26% of MSKK. Generally Accepted Accounting Principles require that the initial investment of an acquired company be valued at the same amount as the value when control was achieved. As a result, Q2-2014 results included a substantial non-cash gain of approximately $1.4 million ($500 thousand net of tax effects) in addition to the impact of the acquisition and results of their operations from January 14, 2014 through March 31, 2014. The acquisition of MediaMission BV was completed effective December 16, 2013.
Sonic Foundry also announced that the Company has entered into a preliminary agreement to license certain patents from Astute Technology and resolve the patent infringement case brought by Astute Technology against a customer for which Sonic Foundry has agreed to indemnify. Pursuant to the preliminary agreement, the lawsuit will be dismissed and the Company will provide Astute a cross license to certain of the company’s patents. The preliminary agreement calls for a payment to Astute of $1.35 million, of which the Company expects to contribute $1.1 million and pay over a ten-month period beginning upon dismissal of the complaints. The Company recorded a charge to earnings of $400 thousand for the quarter ended March 31, 2014, representing an estimate of the amount of the proposed license related to past use. The remaining amount to be paid by the Company will be recorded as an asset in Q3-2014 and amortized over the remaining life of the patents.
“Upon finalization, a settlement with Astute will resolve all pending litigation between the parties, and allow us to direct our full attention and resources to continuing to improve our competitive position, and focus on the fundamentals of revenue growth and profitability to increase the value of the company. We believe this is a positive step as eliminating protracted cost of the litigation is a positive for our customers and stockholders,” said Gary Weis, chief executive officer of Sonic Foundry.
“The second quarter of fiscal 2014 marks our most successful quarter in company history – from the perspective of both revenue and billings. We achieved this as a direct result of increasing our global footprint, and rapidly accelerating the delivery of an enhanced product platform to new markets worldwide. We expect the next several quarters to bring even more success as we extend our reach in these new markets, and continue to build on our value-offerings to customers in our current markets.”
The Company is reiterating the fiscal 2014 guidance provided earlier of $39 million of billings for its core business as well as the range of guidance provided for large transactions of between $1.0 million and $2.0 million. Our outlook on fiscal 2014 pre-tax income before the impact of the $500 thousand net non-cash step up gain and $400 thousand one-time patent charge was impacted by higher than expected defense costs required in Q2-2014 and April 2014 and is expected to range between 2 to 4% of revenue compared to our original guidance of 4 to 5%.
Sonic Foundry will host a corporate webcast today for analysts and investors to discuss its fiscal 2014 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. An archive of the webcast will be available for 90 days.
EXPLANATION OF NON-GAAP MEASURES
To supplement our financial results presented on a GAAP basis, we use a measure of non-GAAP net income or loss in our financial presentation, which excludes certain non-cash costs and includes certain cash billings not recognized as revenue for GAAP purposes. 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. Management also believes that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating our operating results and future prospects in the same manner as management and in comparing financial results across accounting periods and to those of peer companies. Our non-GAAP financial measures reflect adjustments based on the following items:
About Sonic Foundry®, Inc.
Sonic Foundry (NASDAQ: SOFO) is the trusted 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 2,800 customers in 58 countries. The company empowers organizations to reach everyone through the power of video; accelerating knowledge-sharing, preserving valuable content, building stronger teams and getting results.
© 2014 Sonic Foundry, Inc. Product and service names mentioned herein are the trademarks of Sonic Foundry, Inc. or their respective owners.
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)|
|March 31,||September 30,|
|Cash and cash equivalents||$||4,381||$||3,482|
|Accounts receivable, net of allowances of $242 and $90||9,864||6,885|
|Prepaid expenses and other current assets||2,089||805|
|Total current assets||18,305||12,619|
|Property and equipment:|
|Furniture and fixtures||862||581|
|Total property and equipment||7,446||6,729|
|Less accumulated depreciation and amortization||4,049||3,449|
|Net property and equipment||3,397||3,280|
|Investment in MediaMission||-||-|
|Minority interest in Mediasite KK||-||385|
|Customer relationships, net of amortization of $58 and $0||2,604||-|
|Software development costs, net of amortization of $163 and $75||370||458|
|Other intangibles, net of amortization of $145 and $135||609||15|
|Liabilities and stockholders' equity|
|Revolving line of credit||$||
|Current portion of capital lease obligation||138||223|
|Current portion of notes payable to bank||995||634|
|Current portion of subordinated notes payable||2,109||-|
|Total current liabilities||16,024||10,044|
|Long-term portion of unearned revenue||1,203||648|
|Long-term portion of subordinated note payable||458||
|Long-term portion of capital lease obligation||177||149|
|Long-term portion of notes payable to bank||1,626||133|
|Leasehold improvement liability||461||445|
|Deferred tax liability||4,357||2,210|
|Preferred stock, $.01 par value, authorized 500,000 shares; none issued|
|5% preferred stock, Series B, voting, cumulative, convertible, $.01 par value (liquidation preference at par), authorized 1,000,000 shares, none issued||
|Common stock, $.01 par value, authorized 10,000,000 shares; 4,241,600 and 3,999,634 shares issued and 4,228,884 and 3,986,918 shares outstanding||
|Additional paid-in capital||193,647||190,653|
|Accumulated other comprehensive loss||-||(238||)|
|Receivable for common stock issued||(26||)||(26||)|
|Treasury stock, at cost, 12,716 shares||(169||)||(169||)|
|Total stockholders' equity||12,394||10,704|
|Total liabilities and stockholders' equity||$||36,700||$||24,333|
|Sonic Foundry, Inc.|
|Condensed Consolidated Statements of Operations|
|(in thousands, except for share and per share data)|
|Three Months Ended March 31,||Six Months Ended March 31,|
|Cost of revenue:|
|Total cost of revenue||2,379||1,740||4,189||3,425|
|Selling and marketing||4,058||3,022||7,446||6,029|
|General and administrative||1,681||834||2,618||1,649|
|Total Operating Costs||7,521||4,724||13,543||9,722|
|Gain on investment in MSKK||1,406||90||1,429||168|
|Other expense, net||(84||)||(23||)||(101||)||(49||)|
|Income (loss) before income taxes||300||33||(320||)||(46||)|
|Provision for income taxes||(1,171||)||(60||)||(1,241||)||(120||)|
|Loss per common share:|
|Basic net loss per common share||$||(0.21||)||$||(0.01||)||$||(0.39||)||$||(0.04||)|
|Diluted net loss per common share||$||(0.21||)||$||(0.01||)||$||(0.39||)||$||(0.04||)|
|Weighted average common shares|
|Non-GAAP Consolidated Statements of Operations|
|(in thousands, except for per share data)|
|Fiscal Quarter Ended||Fiscal Quarter Ended|
|March 31, 2014||March 31, 2013|
|Cost of revenue||2,379||-||2,379||1,740||-||1,740|
|Total operating expenses||7,521||(962||)||6,559||4,724||(447||)||4,277|
|Income (loss) from operations||(1,022||)||2,380||1,358||(34||)||579||545|
|Gain on investment in MSKK||1,406||(1,391||)||15||90||-||90|
|Other expense, net||(84||)||-||(84||)||(23||)||-||(23||)|
|Provision for income taxes||(1,171||)||1,171||-||(60||)||60||-|
|Net income (loss)||$||(871||)||$||2,160||$||1,289||$||(27||)||$||639||$||612|
|Basic and diluted net income per common share||$||(0.21||)||$||0.51||$||0.31||$||(0.01||)||$||0.16||$||0.16|
(1)Adjustments consist of the following:
|Depreciation and amortization||369||283|
|Provision for income taxes||1,171||60|
|Step Up Gain on investment in MSKK||(1,391||)||-|
|Total non-GAAP adjustments||$||2,160||$||639|
|(2) Stock-based compensation is included in the following GAAP operating expenses:|
|Selling and marketing||$||127||$||108|
|General and administrative||11||10|
|Total stock-based compensation||$||193||$||164|