Sonic Foundry Reports Third Quarter 2009 Results

MADISON, Wis., July 30 /PRNewswire-FirstCall/ -- Sonic Foundry, Inc. (Nasdaq:
SOFO), the recognized market leader for rich media webcasting and knowledge
management, today announced financial results for its fiscal 2009 third
quarter ended June 30, 2009. Results include:

-- Revenue of $5.0 million, down slightly from 2008 fiscal third quarter
revenue of $5.1 million.
-- Quarterly loss of $162 thousand equating to $0.00 per diluted share
compared to an $829 thousand loss or $(0.02) per diluted share in the
fiscal third quarter of 2008.
-- Non-GAAP net income of $91 thousand or $0.00 per diluted share
compared
to non-GAAP net income of $210 thousand or $0.01 per diluted share in
the fiscal third quarter of 2008.
-- Billings of $5.0 million compared to $5.5 million in the fiscal third
quarter of 2008.
-- Service revenue of $2.4 million, up 17 percent from fiscal Q3 2008.
-- Unearned revenue balance of $4.7 million at June 30, 2009 compared to
$3.6 million at June 30, 2008.
-- Operating expenses of $4.1 million, down 11 percent from $4.6 million
during the fiscal third quarter of fiscal 2008.

-- Gross margin of 78 percent, up from 74 percent for the fiscal third
quarter of 2008.

Non-GAAP net income primarily excludes all non-cash related expenses of stock
compensation, depreciation, amortization, personnel and program reduction 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.

Expense reductions and cost control resulted in achieving $0.00 per diluted
share for the second consecutive quarter and quarter over quarter EPS
improvement for the fifth consecutive reporting period. The company now
believes it will exceed 20 percent revenue growth for the full year at current
operating expense levels. Previous company revenue growth guidance for fiscal
2009 was estimated to be between 15 and 20 percent, or $18 million to $18.7
million.

The company increased the balance of unearned revenue by $1.1 million or 29
percent from June 30, 2008 to its current end of quarter level of $4.7
million. Of the unearned revenue balance, the company expects to realize $1.8
million in the upcoming quarter. Gross margin was 78 percent, up from 74
percent in the prior year, primarily due to realizing a decrease in the cost
of manufacturing Mediasite Recorders.

Billings to higher education customers totaled 64 percent of total billings
for the third quarter of both fiscal 2009 and 2008. Total international sales
accounted for approximately 25 percent of the quarter's billings, compared to
15 percent for the third quarter of fiscal 2008.

The company derives a substantial portion of revenues from public colleges and
universities based in the United States. Quarterly results, particularly new
product sales, were impacted by the continuing economic crisis, budget delays
now affecting the vast majority of state governments and the delay in
distributing federal stimulus money earmarked for the U.S. higher education
sector. As these issues resolve themselves, the company believes that its
product and service offerings are very well aligned for the initiatives now
taking place among these organizations, including helping state institutions
address oversized classes, reduced teaching capacity and the need to
re-educate an unemployed workforce.

Total services revenue was $2.4 million for the quarter, an increase of 17
percent from the third quarter of fiscal 2008. Services revenue includes
Mediasite customer support contracts, as well as training, installation,
rental, event and content hosting services. The increase was primarily due to
event and content hosting services plus support contracts on new Mediasite
Recorders and recurring renewals of support contracts entered into previous
years.

During the third quarter, the company held its third annual User Conference,
which was the largest to date. The conference was offered on-site in Madison,
Wisconsin, as well as completely online via Mediasite for those conference
attendees facing travel restrictions and budget constraints.

Other highlights of the quarter include:
-- Webcasting Michelle Obama's only university commencement address
from the University of California Merced
-- Launching the webinar, "A Recommended IT Roadmap for Campus-wide
Lecture Capture: Your Courses Online Now" with featured analyst
firm Gartner
-- The company's most successful year exhibiting at InfoComm 2009, the
world's largest professional AV technology event

-- Continued event webcasting partnerships with the leading higher
education and training events, including EduComm, Sloan Consortium and
the American Society for Training and Development

"We are very proud of the company's year-to-date growth, margin expansion and
expense control, all in an unprecedented economic climate," said Rimas
Buinevicius, chairman and CEO of Sonic Foundry. "We believe we have just gone
through the worst portion of the recession and are beginning to re-emerge
economically, with the technology sector leading the way. We believe this
ultimate return to normalcy should help fuel future growth in all the business
segments we serve, both domestically and internationally."

Sonic Foundry will host a corporate webcast today for analysts and investors
to discuss its third quarter fiscal 2009 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, go to www.sonicfoundry.com/q3. To watch the presentation in the
newest Mediasite Player (set for release late summer), go to
www.sonicfoundry.com/q3silverlight. An archive of the webcast will be
available for 30 days.

The company received notice from NASDAQ on October 22, 2008 that, in response
to extraordinary market conditions, NASDAQ was suspending enforcement of the
minimum bid price requirement of $1.00 per share for 90 days. Sonic Foundry
received additional notices on December 23, 2008 and March 24, 2009 extending
the suspension of the minimum bid price for an additional 90 days. On July 14,
2009, Sonic Foundry received notice from NASDAQ that enforcement of the
minimum bid price requirement would be reinstated on August 3, 2009. Since the
company had 141 calendar days remaining in its bid price compliance period
when suspension began, Sonic Foundry has until December 21, 2009, to regain
compliance.

EXPLANATION OF NON-GAAP MEASURES
To supplement our financial results presented on a GAAP basis, we use the
measure of non-GAAP net income or loss in our financial presentation, which
exclude certain non-cash costs and include 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. Our non-GAAP financial measures reflect
adjustments based on the following items:

-- Billings not recorded as revenue: We have included the cash effect of
billings not recorded as revenue, which are deferred for GAAP
purposes,
in arriving at non-GAAP net income or loss. Our services are
typically
billed and collected in advance of providing the service which
requires
minimal cost to perform in the future. Billings are a better
indicator
of customer activity and cash flow than revenue is, in management's
opinion, and is therefore used by management as a key operational
indicator.
-- Depreciation and amortization of intangible and other assets expenses:
We have excluded the effect of depreciation and amortization of assets
from our non-GAAP net income or 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.
-- Personnel and program reduction costs: We have excluded the additional
costs incurred as a result of our cost reduction plan which was
communicated in January 2008. These costs include severance costs
associated with employee reductions as we better aligned ourselves
with
key vertical markets. Also excluded is a one time charge associated
with an early extinguishment of a lease.

-- Stock-based compensation expenses: We maintain an employee qualified
stock option plan under which we grant options to acquire common stock
to eligible employees. We also maintain an employee stock purchase
plan
under which common stock may be issued to eligible employees at a
reduced price. Stock-based compensation expenses are recorded for
these
plans in accordance with Statement of Financial Accounting Standard
No.
123R, Share-Based Payment - an Amendment of FASB Statement Nos. 123
and
95. Stock-based compensation expense is a non-cash expense. As a
result,
we have excluded the effect of stock-based compensation expenses from
our non-GAAP net income or loss.

About Sonic Foundry(R), Inc.
Sonic Foundry (Nasdaq: SOFO, www.sonicfoundry.com) is the global leader for
rich media webcasting and knowledge management, providing enterprise
communication solutions for more than 1,500 customers in education, business
and government. Powered by Mediasite, the patented webcasting platform which
automates the capture, management, delivery and search of lectures, online
training and briefings, Sonic Foundry empowers people to transform the way
they communicate. Through the Mediasite platform and its Events Services
group, the company helps customers connect a dynamic, evolving world of shared
knowledge and envisions a future where learners and workers around the globe
use webcasting to bridge time and distance, accelerate research and improve
performance.

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)
(Unaudited)
June 30, September 30,
2009 2008
-------- -------------
Assets
Current assets:
Cash and cash equivalents $2,371 $3,560
Accounts receivable, net
of allowance of $105 and $150 4,007 3,864
Inventories 335 330
Prepaid expenses and other current assets 570 429
--- ---
Total current assets 7,283 8,183
Property and equipment:
Leasehold improvements 980 980
Computer equipment 2,530 2,476
Furniture and fixtures 461 461
--- ---
Total property and equipment 3,971 3,917
Less accumulated depreciation 2,548 2,223
----- -----
Net property and equipment 1,423 1,694
Other assets:
Goodwill 7,576 7,576
Other intangibles, net of
amortization of $25 and $19 35 21
--- ---
Total assets $16,317 $17,474
======= =======

Liabilities and stockholders' equity
Current liabilities:
Line of credit $300 $ -
Accounts payable 722 1,256
Accrued liabilities 775 1,113
Unearned revenue 4,697 4,661
Current portion of notes payable 330 333
Current portion of capital lease
obligations 34 46
--- ---
Total current liabilities 6,858 7,409

Long-term portion of notes payable 617 223
Long-term portion of capital
lease obligations - 24
Other liabilities 191 255
--- ---
Total liabilities 7,666 7,911

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; 36,051,041 and
35,728,837 shares issued and 35,923,874
and 35,601,670 shares outstanding 361 357
Additional paid-in capital 184,842 184,204
Accumulated deficit (176,357) (174,803)
Receivable for common stock issued (26) (26)
Treasury stock, at cost, 127,167 shares (169) (169)
--- ---
Total stockholders' equity 8,651 9,563
----- -----
Total liabilities and stockholders' equity $16,317 $17,474
======= =======

See accompanying notes

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

Three Months Nine Months
Ended June 30, Ended June 30,
2009 2008 2009 2008
--------------- ---------------
Revenue:
Product $2,637 $3,022 $7,630 $6,146
Services 2,367 2,028 6,732 5,305
Other 23 37 87 85
--- --- --- ---
Total revenue 5,027 5,087 14,449 11,536
Cost of revenue:
Product 956 1,244 2,917 2,850
Services 139 60 399 230
--- --- --- ---
Total cost of revenue 1,095 1,304 3,316 3,080
----- ----- ----- -----
Gross margin 3,932 3,783 11,133 8,456

Operating expenses:
Selling and marketing 2,586 3,295 7,856 10,171
General and administrative 652 530 2,168 2,244
Product development 845 778 2,635 2,706
--- --- ----- -----
Total operating expenses 4,083 4,603 12,659 15,121
----- ----- ------ ------
Loss from operations (151) (820) (1,526) (6,665)

Other income (expense), net (11) (9) (28) 18
--- --- --- ---
Net loss $(162) $(829) $(1,554) $(6,647)
===== ===== ======= =======
Net loss per common share:
- basic and diluted $(0.00) $(0.02) $(0.04) $(0.19)
====== ====== ====== ======

Weighted average common
shares - basic and diluted 35,910,575 35,582,989 35,824,818 35,572,276
========== ========== ========== ==========
See accompanying notes

Non-GAAP Consolidated Statements of Operations
(in thousands)

Fiscal Quarter Ended Fiscal Quarter Ended
June 30, 2009 June 30, 2008
GAAP Adj(1) Non-GAAP GAAP Adj(1) Non-GAAP

Revenues $5,027 $(25) $5,002 $5,087 $376 $5,463

Cost of revenue 1,095 - 1,095 1,304 - 1,304

Total Operating
expenses 4,083 (278) 3,805 4,603 (663) 3,940
----- --- ----- ----- --- -----

Loss from
operations (151) 253 102 (820) 1,039 219

Other income (11) - (11) (9) - (9)
--- --- --- --- --- ---
Net income
(loss) $(162) $253 $91 $(829) $1,039 $210
===== ==== === ===== ====== ====
Diluted net
income (loss)
per common
share $(0.00) $0.01 $0.00 $(0.02) $0.03 $0.01
====== ===== ===== ====== ===== =====

(1) Adjustments consist of the following:

Billings (25) 376
Depreciation (in G&A) 154 178
Personnel and program
reductions - 296
Stock-based compensation(2) 124 189
--- ---
Total non-GAAP adjustments 253 1,039

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

Selling and marketing 79 122
General and administrative 11 18
Research and development 34 49
--- ---
Total stock-based
compensation 124 189

SOURCE Sonic Foundry, Inc.

Rob Schatz of Wolfe, Axelrod, Weinberger & Assoc., LLC, +1-212-370-4500,
rob@wolfeaxelrod.com, for Sonic Foundry, Inc.