SOFO

Sonic Foundry, Inc. (SOFO)

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Sonic Foundry Inc. (SOFO)

F1Q10 Earnings Call

January 28, 2010 04:30 p.m. ET

Executives

Ken Minor - CFO

Rimas Buinevicius - CEO and Chairman

Analysts

Presentation

Operator

(Operator instructions). We will begin Q&A directly after the prepared remarks. In compliance with the SEC regulation regarding fair disclosure, we will be using SEC filings and public presentations like the one you are viewing and participating in today as the principle means of informing the street and investors as to both our current and past results as well as providing guidance on our projected operating results.

Sonic Foundry will continue to meet with analysts, investors, the media and others on an inter-quarter basis but will not provide updates regarding quarter-to-quarter date results, financial projects or any material, non-public information during those meetings. Sonic Foundry’s disclosure policy defines the period beginning on the 15th day of the third month of each fiscal quarter and ending on the day we publicly release 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 press release form. Finally this conference will contain forward-looking statements about the products and services of Sonic Foundry within the meaning of Section 27 A of the Securities Act of 1933 and 21 E 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 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 10-Q, 10-K and other filings with the SEC. These filings can be accessed online at sec.gov and other websites or can be obtained from the company’s investor relations department.

All of the information and disclosures we make today regarding our business including any forward-looking guidance are as of the day 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 sonicfoundry.com for 30 days and now Ken Minor will begin today’s presentation.

Ken Minor

Thank you, Erica and good afternoon everyone. I will begin by going through some of the quarterly highlights. In a quarter that’s typically our lowest seasonal point of the year we were able to grow overall revenue by 12%, grow service revenue by 14%, maintain our gross margins, decrease our operating expenses 14% and reduce the GAAP loss by nearly $1 million to a net loss of $320,000.

As a reminder all share and per share amounts I report today and going forward reflect our one for ten, our reverse stock split of common shares which we completed on November 16 of 2009.

In terms of the trailing financial key results, we typically realized as I said a seasonal drop of billings in Q1 of each year, you will note the reduction was quite nominal this time around from $4.7 million in Q4 of ‘09 to $4.3 million in Q1 of 2010. We recorded an increase in revenues over Q4 of ‘09 recognized the third highest revenue amount in this trend despite the seasonality.

The continued reductions in operating expenses are providing for similar improvements to our bottom line. Unearned revenue again continues its upper trend in the year-over-year results as well reflecting the increase in our service revenues. In terms of our mix of billings, we saw growth over year-over-year in both product and service offerings.

We saw some rebound in the corporate spending and continued strong results in our international arena, driving greater growth in new product billings. While recurring and high margin service offerings remain consistent due to the value of our support of new products which were partially offset by some slightly lower events results.

In terms of our year-over-year summary, we again grew revenues to $4.5 million, which is 12%, gross margins were 77% in Q1 of 2010 which is roughly consistent with the 78% we recorded in Q1 of ‘09. Operating expenses reflect a pretty significant decrease coming in at $3.7 million in Q1 of 2010 compared to the $4.3 million a year ago, we saw a decreased compensation cost which was the more significant contributor to the overall decrease from last year due to modest reduction in headcount and reduced incentive compensation.

We also saw a non-cash stock compensation expense which was significantly lower than last year with a credit balance this year of $77,000 due to the impact of some forfeitures and that compares to an expense of $205,000 last year. The GAAP net loss of $320,000 or $0.09 a share this quarter compares to a loss of $1.3 million or $0.36 per share last year.

The non-GAAP adjustments that reconcile the GAAP to the non-GAAP results include non-cash depreciation and amortization which were comparable at $133,000 this year compared to $160,000 in Q1 of ‘09. These stock compensation which as I said a moment ago were actually a credit balance this year of $77,000 that compares to the $205,000 last year and a more typical going forward Q result for our stock comp would be about $75,000 or $80,000 positive.

Read the rest of this transcript for free on seekingalpha.com