Sonic Foundry Announces Fourth Quarter and Fiscal 2016 Financial Results

MADISON, WS--(Marketwired - December 22, 2016) - Sonic Foundry, Inc. (NASDAQ: SOFO), the trusted leader for video creation and management solutions, today announced consolidated financial results for its fiscal 2016 fourth quarter and fiscal year ended September 30, 2016.

Fiscal 2016 Fourth Quarter Highlights

• Total revenues of $9.5 million, represent an increase of 4% compared to $9.1 million in the fourth quarter of 2015; growth was driven by a 32% increase in cloud hosting revenues in the quarter.
• Gross margin increased to $7.1 million, or 75% of sales compared to $6.5 million, or 71% of sales for the fourth quarter of 2015.
• Adjusted EBITDA of $4,000 represented a positive swing of $216,000 compared to a loss of $(212,000) in the fourth quarter of fiscal 2015.
• Net loss declined to $847,000 or $(0.19) per share compared to a net loss of $1,222,000 or $(0.28) per share in the fourth quarter of 2015.
• Billings totaled $9.7 million in the fourth quarter of 2016, a decline of 16% compared to last year's same period; the company billed $2.6 million to two Middle East customers in the fourth quarter of fiscal 2015 which were not repeated in the fourth quarter of fiscal 2016.
• Unearned revenue from services and products increased $1.4 million, or 11% and stood at $14.1 million as of September 30, 2016, compared to $12.7 million at the beginning of the year.

Fiscal 2016 Fourth Quarter Review

Total revenues of $9.5 million represented a 4% year-over-year increase, primarily due to a 32% increase in cloud hosting contracts revenue. The company had $14.1 million in unearned revenue at September 30, 2016, an increase of $1.4 million or 11% from September 30, 2015. Billings associated with the Company's cloud hosting business at $1.5 million this quarter were 38% higher than the fourth quarter last year and billings for annual, recurring software licenses increased 53% to almost $700,000. The Company expects to recognize $4.5 million of this unearned revenue in the first quarter of fiscal 2017, and additionally expects to record revenue from a large international transaction that was billed in September 2015.

Consolidated gross margin of 75% was four percentage points higher than the same period last year, and was the result of greater efficiencies in our events business and by recognizing a high volume, lower margin international transaction last year. The company reported a net loss of $847,000 for the quarter and Adjusted EBITDA income of $4,000, both of which reflect the company's continued efforts to control its operating costs.

International product and service billings accounted for 41 percent of Sonic Foundry's consolidated billings in the fourth quarter 2016, compared to 53 percent in the fourth quarter 2015. Q4 2016 revenue did not include billings of $625 thousand to our Chinese distributor. The criteria for recognizing revenue are very complex and requires significant judgement in determining when transactions are recognized. In support of our distributor's investment in establishing a company to address demand for our solution in China, we agreed to extended payment terms. While we have collected nearly $1 million from our distributor to date for their orders, we determined that revenue for the Q4 2016 order should be deferred. We believe our extended terms will approach more typical distributor terms by the end of fiscal 2017.

Fiscal 2016 billings were $39.5 million which were consistent with fiscal 2015 billings of $39.4 million. Fiscal 2015 included three very large transactions in the Middle East of $3.5 million as well as one large domestic transaction of $490 thousand. While additional large transactions were planned in fiscal 2016, and continue to be in our pipeline, customer construction and other delays caused no such large individual transactions to be recorded in fiscal 2016. Our base business, absent large deals, increased $4.1 million, from $35.4 million to $39.5 million, or 12%. The Company recorded cash generated from operations of $1.7 million in fiscal 2016 compared to a use of cash in operations of $3.1 million in fiscal 2015. Recurring revenue in fiscal 2016 totaled over $23 million or 61% of total revenue.

"Our 2016 performance shows continued improvement in the fundamentals of our business, with healthy gains in revenues and gross margins, which are now at the higher end of our historical range, and narrowing losses at the bottom line. Billings were flat in comparison to 2015 when we benefitted from four large transactions with approximately $4 million in aggregate billings. While we had no similar large transactions in 2016, we still achieved base-business growth of 12%, and the large portion of our revenues which are recurring has us approaching profitability," said Gary Weis, CEO of Sonic Foundry.

"We expect to continue to drive top-line growth in 2017, both in our base business and the pipeline of large transactions, and look forward to closing a number of these large deals during the fiscal year. The progress of our China distributor is very encouraging and we believe they have laid the groundwork for both federal and local funding of education initiatives in China for 2017.

Outlook
The Company is providing metrics for fiscal 2017 including the following:

• Billings growth from individual transactions of less than $450 thousand is expected to range between five and seven percent from $39.5 million in fiscal 2016.
• Billings from remaining, larger transactions are inherently more complex in many ways -- often requiring construction of new buildings or campuses -- and may require modification to meet certain technical requirements. Our pipeline of expected large transactions is at approximately $5 million and believe we will be successful in several of those during fiscal 2017. Due to the inherent uncertainty, we cannot predict when or if we complete these transactions. Therefore we are providing guidance of between zero and $2 million in fiscal 2017
• Continued gross margin improvement from 74% in fiscal 2016 to 75% or better

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 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. 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 and years ended September 30, 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
Based on investor feedback, Sonic Foundry is seeking new ways to maximize the attendee experience for this live earnings call, therefore investors will see a slight format shift.

Attendees will view the presentation via the webcasting platform, Mediasite; and will then transition to a conference call for the question and answer portion of the presentation. Attendees will only hear the Q&A if they dial in.

We will continue to use investor input to evaluate the best format for future investor communications.

To access the webcast, go to http://www.sonicfoundry.com/earnings on or before December 22, 2016; the dial-in number will be provided during that webcast to participate in the question and answer portion. An archive of the webcast will be available for 90 days.

About Sonic Foundry®, Inc.
Sonic Foundry, Inc. (NASDAQ: SOFO) (the "Company") is the trusted global leader for video capture, management and webcasting solutions in education, business and government. Mediasite transforms communications, training, education and events for more than 4,300 customers in over 65 countries. Sonic Foundry is a leader in Aragon Research's Globe™ for Video Content Management, winner of Frost & Sullivan's Global Market Share Leadership Award in Lecture Capture Solutions 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.