Sonic Foundry, Inc. (NASDAQ: SOFO), the trusted leader in video creation and management solutions, and virtual and hybrid events, today announced consolidated financial results for its 2023 fiscal first quarter ended December 31, 2022.
Highlights for the First Quarter Ended December 31, 2022:
- Total revenue was $5.0 million compared to $7.3 million in the prior-year quarter primarily due to client delays in renewals of support contracts due to macro environment concerns, foreign currency impact on Japanese operations, and supply chain disruptions.
- Gross margin was 61% of revenue versus 71% of revenue in the prior year quarter, primarily due to accelerated depreciation on hosting infrastructure related to the AWS transition on a lower revenue base.
- Net loss was $0.38 per diluted share compared to a net loss of $0.17 per diluted share in the first fiscal quarter of 2022.
- Adjusted EBITDA was a negative $2.9 million compared to negative $1.1 million in the fiscal first quarter of 2022.
- Secured $8.5 million in debt financing and raised $1.2 million in equity agreement, November 2022.
Management Commentary:
“During the first quarter, we remained focused on executing our strategy to transform Sonic Foundry into a high-velocity, high-growth company. Our financial performance certainly reflected the challenging macroeconomic environment but is critical to view these results in the context of our overall strategic plan. We fully expected that our Mediasite business would encounter difficult conditions in a limited-growth market, which is why we devoted an enormous effort in 2022 to launch multiple brand-new initiatives that leverage our core strengths in markets that we believe are positioned for massive growth in the years ahead. Accordingly, the results in front of us today represent the cost of investment in a sound, future-oriented growth strategy that we are implementing as we speak. Our teams have been working tirelessly to deliver genuine progress across all three of the growth brands that we launched in 2022 – Vidable™, Global Learning Exchange™ (GLX) and Video Solutions. I am confident that each of these businesses is effectively transitioning from a launch phase into a growth and expansion-focused rollout and on pace to achieve profitability before the end of 2024,” said Sonic Foundry CEO Joe Mozden, Jr.
“Vidable, our next-gen solution that applies artificial intelligence to transform video content, continues to impress our Mediasite customers and is gaining wider adoption. After completing a trial of Vidable captioning services with Mediasite customers that resulted in 100% customer adoption, we have deployed several other new Vidable capabilities across a wider base of Mediasite customers. Over 75% of top U.S. Mediasite accounts are regularly using Vidable. Additionally, we now have integrations in place that will enable non-Mediasite customers access to the Vidable platform.”
“January marked an important milestone for our Global Learning Exchange, when our first students began classes in our Bahamas Hub. We have received numerous applications in the Bahamas for enrollments throughout 2023. In Nigeria, our partnerships with UNESCO-REF and with public institutions including the Office of the Senior Special Assistant to the President of Nigeria are beginning to bear fruit. We currently have a lengthy list of prospective students, and we are excited to deliver online higher education through our unique model to Nigerian students, who otherwise would not have the life-changing benefits of participating in higher education. Nigeria is an especially exciting prospect based on its size and the persistent supply/demand imbalance in its local higher education market. According to statistics from Oxford University, UNESCO, and The World Bank, over 75% of higher education applicants in Nigeria are denied admission on an annual basis – not because they lack the qualifications but because institutions in the region are at capacity. This imbalance translates to a target market of over 1.5 million students annually, and we believe that we have the right solution to win this market.”
“Our Video Solutions team is setting new standards of simplicity and reliability in the event content services market. Through a partnership with CTI Meeting Technology announced in January, we will provide event planners and organizers with a world-class, end-to-end content solution that allows them to manage all their content – including abstracts, presentations, graphic assets, and video—through a single integrated pipeline. Additionally, the innovative workflow that our team has developed with CTI will allow us to turn around high-quality on-demand video in one hour – a first for the events industry and a direct response to a specific, widespread pain point for event organizers. It is through carefully targeted innovations like this one that we expect to overcome market challenges and accelerate the long-term growth trajectory that I have outlined here and in previous communications.”
“And finally, the results of our core Mediasite business reflected ongoing uncertainty in the events market, as we anticipated. The environment in Japan was especially difficult. Previously, we had a thriving events business there, but unfavorable currency exchange rates and in-country COVID restrictions continued to have a negative impact on our business. These challenges reinforced our intense focus on executing our new growth opportunities and we expect these measures to begin showing meaningful traction over the next several quarters. As previously stated, our goal is to make these new business units profitable before we exit 2024. While there is still significant work ahead, I am confident in our team’s ability to execute, and we are excited about Sonic Foundry’s bright future,” concluded Mozden.
Fiscal First Quarter 2023 Operating Results:
Service revenue, which included support, cloud services, events, and professional services, was $4.1 million for the fiscal first quarter ended December 31, 2022, compared to prior-year-quarter service revenue of $5.2 million. Product revenue was $878 thousand compared to $2.0 million during the same period last year. Cloud services revenue, which also included event-related cloud services, decreased 16% to $1.7 million in the fiscal first quarter of 2022 compared to $1.8 million in the same quarter last year. Event revenue in the fiscal first quarter of 2022 was $1.1 million, compared with $1.4 million reported in the comparable year-ago quarter. Gross margin was $3.0 million for the fiscal first quarter of fiscal 2023, compared with $5.1 million in the same period of the prior fiscal year.
Non-GAAP Financial Information:
To supplement and enhance the reader’s understanding of our operating performance, 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 and severance 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. A reconciliation of net income to adjusted EBITDA for the first quarters ended December 31, 2022, and 2021 are included in the release.
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