Sonic Foundry Reports Fourth Quarter and Fiscal 2008 Year-End Results

MADISON, Wis. - Sonic Foundry, Inc. (NASDAQ: SOFO), the recognized market leader for rich media webcasting and knowledge management, today announced financial results for the fourth quarter and fiscal year ended September 30, 2008:

Fourth Quarter

* Billings total $5.3 million compared to $5.0 million in the fourth quarter of 2007
* Revenue totals $4.1 million, which excludes $500 thousand of product billings deferred until the date of installation in the first quarter of fiscal 2009, compared to $4.7 million in the fourth quarter of 2007
* Non-GAAP net income of $298 thousand or $0.01 per diluted share compared to non-GAAP net loss of $817 thousand or $(0.02) per diluted share in the fourth quarter of 2007
* GAAP net loss of $1.2 million or $(0.03) per diluted share compared to $1.4 million or $(0.04) per diluted share in the fourth quarter of 2007
* Deferred revenue balance of $4.7 million compared to $3.6 million at June 30, 2008, and $3.3 million at September 30, 2007
* Positive cash provided by operations and increased balance from June 30, 2008
* Operating expenses total $4.2 million, down from $5.0 million during the fourth quarter of fiscal 2007 and down from $5.5 million during the first quarter of 2008 at which time the company initiated a cost reduction plan

2008 Fiscal Year

* Billings total $17.8 million compared to $18.1 million in 2007
* Revenue totals $15.6 million compared to $16.7 million in 2007 with a 65 percent increase in services revenue
* Cash used in operating activities decreased 34 percent
* GAAP net loss of $7.8 million or $(0.22) per diluted share compared to $6.4 million or $(0.18) per diluted share in 2007

Non-GAAP net income primarily excludes all non-cash related expenses of stock compensation, depreciation, amortization and one time severance payments 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.

As previously reported, the company initiated measures in January 2008 to deemphasize corporate enterprise sales and to concentrate efforts within the higher education and corporate training sectors. Continued progress was seen in the fourth quarter resulting in positive non-GAAP net income of $298 thousand or $0.01 per share, marking the second straight quarter with non-GAAP net income. The positive non-GAAP performance combined with favorable working capital requirements led to an increase in cash from June 30, 2008. The company’s cost reduction strategy reduced quarterly operating expenses throughout the year, ultimately limiting the yearly operating expense increase to just $57 thousand.

Sonic Foundry achieved 18 percent higher year-end deferred revenue than originally forecasted, leading to a balance of $4.7 million at September 30, 2008. Of the deferred revenue balance, the company expects to realize $2.2 million in the upcoming quarter. Recorder unit shipments increased 7 percent from 720 to 776, while service revenue was $7.0 million, a 65 percent increase over fiscal 2007 due primarily to an increase in event and content hosting services as well as new and renewed support contracts. Gross margins were $11.4 million or 73 percent for the fiscal year, compared to $12.6 million and 75 percent in the previous year. The decrease in gross margins is due to discount pricing related to an increase in higher volume transactions and incentive programs for end of life hardware upgrades.

Billings to higher education customers totaled 57 percent of total billings for the year, an increase from 35 percent in fiscal 2007. The company has sold to more than 600 education customers to date.

Sonic Foundry remains focused on the education and corporate webcasting-as-a-service markets given historic evidence that these sectors thrive during a slow economy. Demand for online training and event webcasting in the corporate enterprise is expected to increase as companies look to cut travel costs yet maintain company-wide communication and alignment. Likewise, enrollment in colleges and universities traditionally either remains stable or increases during an economic slowdown, particularly as workers seek retraining and graduate degrees.

Domestic higher education licensed sales to new customers for the fourth quarter of fiscal 2008 included Harrisburg University of Science and Technology, Louisiana State University, Los Angeles Harbor College, Texas Southern University, The Citadel, Touro University Nevada, University of Arizona College of Law, University of New Mexico, University of Southern Nevada, University of Washington School of Dentistry and William Carey University. International sales amounted to 19 percent of yearly billings and continue to strengthen with new customers at Algonquin College, Institute of Physics - London, Liverpool Hope University, London Business School and University of Witwattersrand.

Outsourced webcasting services for training events resulted in $1.4 million or 8 percent of total billings for the year, a 132 percent increase year over year. Sonic Foundry Event Services customers are typically corporate meeting planners, communication executives or training directors planning either large, multi-room, multi-day events or high-profile live events such as press conferences or product launches.

Additional highlights of fiscal year 2008 include:

* The introduction of Mediasite 5.0 and the next generation of Mediasite RL and ML Recorders at InfoComm in Las Vegas. The release includes more than 100 new features.
* Being named Best Webcasting Platform for the second consecutive year in the Streaming Media Magazine Readers’ Choice Awards.
* The announcement of the 1000th Mediasite customer, Penn State University Dickinson School of Law, and 3500th Event Services webcast for Fiserv.
* Representation from nearly 200 individuals, representing 30 states, seven countries and 95 organizations at UNLEASH 2008, the company’s second annual Mediasite User Conference.
* Continued partnership with the leading higher education conferences in the nation including the the Chronicle of Higher Education, EduComm, Sloan Consortium and EDUCAUSE, where the company streamed key conference sessions live for the first time.

“Over the last year, Sonic Foundry refined its operations and solidified its strategy for addressing both the academic and corporate online learning marketplace. As a result, we are well positioned for future growth,” said Rimas Buinevicius, chairman and CEO of Sonic Foundry. “Given the historic stability of the education market during times of economic uncertainty, coupled with increasing demand for outsourced services, we are confident that we can achieve our near-term objectives and thrive in fiscal 2009.”