Sonic Foundry, Inc. (SOFO)

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Sonic Foundry Inc. (SOFO)

F4Q08 Earnings Call

December 02, 2008; 4:30 pm ET


Rimas Buinevicius - Chairman and Chief Executive Officer

Ken Minor - Chief Financial Officer


Mike Niehuser - Beacon Rock Research

Richard Fetyko - MCF


Ken Minor

Good afternoon and welcome everyone. My name is Ken Minor, Sonic’s Chief Financial Officer and joining me today is Rimas Buinevicius, our Chairman and CEO and today we’ll be discussing fiscal 2008 and fourth quarter results, as well as some new developments.

We’ll be delivering our presentation using Mediasite over the internet and we’ll be taking questions via the phone after the presentation from our analysts and then finally we’ll wrap up with some questions from internet, from you all and then obviously you can continue to post those questions throughout the presentation and again we’ll take those at the end.

Before we get going I will read through our SEC regulation fair disclosure information. So in compliance with the SEC regulation regarding full disclosure, we’ll be using SEC filings and public presentations like the one you are viewing and participating in today, as a principle means of reforming the street and investors as to both our current and past results, as well as providing guidance and projected operating results.

Sonic Foundry will continue to meet with analysts, investors, the media and others on an intra-quarter basis, but will not provide updates regarding quarter to-date financial results, financial projections, or any material non-public information during those meetings.

Sonic Foundry’s disclosure policy defines the period beginning on the 15 day of the third month of each fiscal quarter and ending on the day we publicly released the results of that quarter as a quiet period. During such quiet periods we will not make any comments about our financial performance nor provide forward-looking guidance, except in the press release form.

Finally, this conference will contain 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, new partnerships, our future operating results and any statements we make about the company’s future, including responses to your questions. These types of statements address matters that are subjected 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 as a risk factor disclosed in our periodic Forms 10-Q, 10-K and other filings with the SEC. These filings can be accessed online at and other websites or can be attained from the company’s Investor Relations department.

All the information and disclosures we make today 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. An archive of this presentation will be available at for a shorter period following this call.

At this point, I’ll turn the presentation over to Rimas.

Rimas Buinevicius

Thank you, Ken, and thank you for joining us. Quarterly highlights for Q4 2008: billings were up 6% annually, year-over-year compared to Q4 ’07, $5.3 million up from $5 million. This was reflecting a 2008 transition that we made focusing on education and corporate training, as we pointed out back in almost a year ago.

Now, that we are seeing some struggles in the corporate sector, a lot of struggles in the financial sector and obviously the use that we see everyday, reflects a lot of the pain and suffering that we were starting to forecast a year ago. Our strategy resulted in shifting to higher education, where we were seeing a lot more demand building, larger implementations happening and as such we’ve successfully navigated through 2008 in transitioning the business.

Revenue was lower than anticipated and most of this or actually all of this is really due to the billings piece, once again reflecting the services contribution, so we’re down $600,000 from a year ago to $4.1 million on a GAAP basis, but as we continually report, the billing side outpaced the previous billings a year ago.

GAAP loss was $0.03 or $1.2 million compared to $0.04 or $1.4 million last year, but once again reflecting positive non-GAAP net income, which basically takes into account of Pro Forma estimate of billings as if they were revenues, we do make collections on those typically upfront. It also excludes the depreciation, amortization and then stock option expensing and likewise severance payments, although we are now passed a good portion of those severance payments. Likewise, it includes the cash impacts as I mentioned of the billings that are not recognized as revenue.

Quarterly highlight in Q4, what we saw was a climb in deferred revenue once again due to services. Our previous guidance was that we’ve seen over $4 million in fact that ended up $4.7 million for Q4 2008. This gives us a nice cushion going into 2009 and also it shows some good trends upward as compared to Q3 of ’08 as well as year-over-year Q4 2007.

Pro Forma Q4 operating expense was $3.9 million, which is down consistently through 2008, so once again making very good progress on cutting our operating expenses. As we reported previously, this was something we initiated around January of 2008 and we’ve seen steady progress in getting the cost down. So, obviously this is helping to get us through the pro forma positive performance we’ve seen over the last couple of quarters.

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