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Tuesday, May 5, 2009

Positive Progress for Sonic Foundry/Mediasite

As a follow-up to our arguably-too-long-for-a-blog post last week on Sonic Foundry (SOFO, $0.75), we'll keep this brief: Sonic Foundry reported F2Q09 results Tuesday (link here) that demonstrate further progress:
  • Revenue of $5.4 million increased 38% Y/Y and cash billings increased 22% Y/Y to $5.5 million
  • Education billings increased 18% Y/Y to $3.3 million and non-EDU billings were up 29% to $2.2 million
  • Gross margin was 75.4% versus 70.6% in the prior year quarter for gross profit of $4.1 million
  • Operating expenses totaled $4.2 million, down 16% Y/Y bringing reported (GAAP) operating income to a modest loss of $144 thousand and reported net income to a loss of $152 thousand
  • Adjusted operating and net income (adding back non-cash items) were approximately $300 thousand
  • TTM revenue totaled $18.6 million (+17% Y/Y), billings were $20.2 million (+13% Y/Y), and, importantly, cash operating loss was only $109 thousand
  • Net cash on balance sheet declined to $1.8 million at 3/31/09 from $2.9 million at 12/31/08 (due to working capital cash consumption to fund top-line growth)
  • Management maintained its forecast for +15-20% revenue growth and positive adjusted net income for fiscal 2009
At approximately 17% of fiscal first half sales, the $2 million deal with King Abdullah University of Science and Technology in Saudi Arabia greatly helped Sonic Foundry, and only $400 thousand remains for F3Q09. For this reason, management likely left the full-year forecast unchanged, which implies only 5% Y/Y revenue growth for the second half at the high-end of the guidance range. For all of the reasons outlined in our first post, we suspect that guidance is conservative. Finally, despite the working capital cash usage, we are comfortable that Sonic Foundry's relationship with Silicon Valley Bank will allow the company to fund cash needs related to growth over the next year.

Conclusion: the Mediasite franchise keeps growing and we believe steady to higher demand for productivity enhancing -- money saving -- software/hardware products such as Mediasite will continue through the recession, whether short or prolonged. For those interested in watching Sonic Foundry's short F2Q call, the link is here.

Happy investing,

Jeffrey Walkenhorst

Disclosure: long SOFO.

© 2009 Jeffrey Walkenhorst
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