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 third quarter ended June 30, 2023.
Highlights for the Third Quarter Ended June 30, 2023:
- Total revenue was $5.8 million compared to $6.5 million in the prior year quarter primarily reflecting customers shifting from hardware devices to other means of video capture.
- Gross margin was 57% of revenue versus 71% of revenue in the prior year quarter, primarily due to short-term transition costs to complete the ongoing migration of our hosting infrastructure to the public cloud as well as other non-recurring costs associated with scrap material for our hardware devices.
- Net loss was $7.9 million, or $0.65 per share, compared to a net loss of $1.5 million, or $0.14 per share, in the third fiscal quarter of 2022. The current period net loss included a non-cash and non-recurring impairment charge of approximately $3.8 million to the carrying value of software development. The quarter ended June 30, 2022, included capitalization of approximately $700 thousand of software development while no amounts were capitalized in the current quarter.
- Adjusted EBITDA was a negative $2.9 million compared to negative $1.3 million in the fiscal third quarter of 2022.
Year-to-Date Financial Highlights:
- Revenue of $16.5 million compared to $21.0 million in the same period of 2022, a $4.4 million decrease.
- Gross margin was 58% of revenue versus 71% of revenue in the prior year quarter, primarily due to short-term transition costs related to our move to a public cloud environment with the remainder to support more resources for events delivery.
- Net loss of $15.6 million, or $1.31 per share, compared to a net loss of $4.4 million or $0.46 per share for the comparable period of 2022.
- Adjusted EBITDA was a negative $7.9 million compared to negative $3.1 million, for the comparable period of 2022.
Management Commentary:
“Our results for the third quarter of 2023 are consistent with expectations as we continue to focus on our long-term strategy of transforming Sonic Foundry into a high-growth enterprise. When I came onboard, we recognized that our traditional Mediasite business faced growth limitations in the absence of major market consolidation initiatives. Accordingly, we began looking at new ways to make this core business dynamically relevant to the evolving demand for video management technology. To that end, we developed and launched Vidable®, a next-gen solution that applies AI and machine learning to transform and monetize video content, and Global Learning Exchange™, a revolutionary model for delivering high-quality online learning programs on a global scale. Over the past several quarters, our team has successfully forged strong foundations for each of these new ventures,” said Sonic Foundry CEO Joe Mozden, Jr.
“During this ongoing transformative phase, a number of factors have impacted our quarterly financial results. These factors include ancillary effects of our strategic shift from a hardware-centric business to a SAAS-oriented model, investments to modernize our cloud infrastructure, and accelerated depreciation of assets in our former data center. While these factors have temporarily impacted our recent earnings, they align with our long-term strategy for growth and value creation, and we remain confident that our expansion into new markets will yield positive results in upcoming quarters.
“Encouragingly, our Mediasite business shows promising trends, with a significant increase in customers transitioning to multi-year contracts. This shift increases the total value of contracts, contributes to a growing stream of recurring revenue, and underscores our customers’ ongoing commitment to Mediasite as a core element of their video strategy.
“We are seeing strong customer demand and enthusiasm for Vidable, and we have already sold over 750,000 hours of video transformation, which translates to a 320% increase in Vidable sales quarter-over-quarter. While we are pleased with the progress that we’ve made, we are eager to accelerate the development and rollout of our Vidable offerings and we have adjusted our go-to-market strategy and brought in new talent to support that goal.
“As we announced in June, our Vidable and Video Solutions businesses have combined resources and are currently in the process of rolling out a new slate of event-oriented video services in partnership with one of the world’s leading event technology providers. The logic behind this strategy is simple: the active, hands-on nature of our relationship with Video Solutions customers offers a controlled environment to deploy several of Vidable’s capabilities that are fully operational, but still a few months away from independent general availability.“
Mozden continued, “Our Global Learning Exchange™ (GLX) business is expanding rapidly. In August, we launched three new Hub facilities —two in Nigeria and another in South Africa – that will anchor our presence in Africa, where we are attracting attention and support from both educators and governments. The launch of our Hub in the Bahamas in 2022 produced many valuable insights and gave us a deeper understanding of the key barriers to participation that face prospective students in other markets, principally those related to entry qualifications and affordability. Accordingly, we have established partnerships with several new learning providers that will enable us to shape our offerings for greater affordability and a more streamlined set of admissions standards. I believe these actions will position us to scale the GLX business as we begin to leverage the massive untapped demand for affordable higher education in Africa.
“In conclusion, we remain confident in the strategy we laid out two years ago and our team continues to achieve milestones in alignment with that strategy. Right now, we are heads’ down on execution to produce the results that we know our stakeholders are expecting. While this transformation period has been a bumpier ride than we had hoped, we see several encouraging signs that we have a long runway ahead of us. While it is not easy being an innovator and disrupter, we have a fully dedicated and talented team, who are firing on all cylinders and making real progress, and we expect that observers will begin to see that progress reflected in our financial performance over the next several quarters.”
Fiscal Third Quarter 2023 Operating Results:
Service revenue, which included support, cloud services, events, and professional services, was $4.2 million for the fiscal third quarter ended June 30, 2023, compared to the prior-year-quarter service revenue of $4.2 million. Product revenue was $1.5 million compared to $2.2 million during the same period last year. Cloud services revenue, which also included event-related cloud services was $1.7 million in the fiscal third quarter of 2023 compared to $1.7 million in the same quarter last year. Event revenue in the fiscal third quarter of 2023 was $850 thousand, compared with $1.1 million reported in the comparable period. Gross margin was $3.3 million for the third quarter of fiscal 2023, compared with $4.6 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, severance, and impairment on capitalized software development costs 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 year to date and third quarter ended June 30, 2023, and 2022 are included in the release.
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