CEO Says Sonic Foundry Could Be Six Months Away from Profit

By Brian E. Clark
WisBusiness.com

MADISON – A little more than two years after repositioning itself solely
as an automated rich media solutions provider, Sonic Foundry is two
quarters away from breaking even or posting a profit, CEO Rimas
Buinevicius said Thusday.

Buinevicius made the prediction following the release of the company’s
third quarter results for the 2005 fiscal year, which showed improved
sales for its family of Mediasite rich media communications systems for
the 12th straight quarter.

He said Sonic should become profitable by the end of this calendar
year, which is the first quarter of the company’s 2006 fiscal year.

“We’re in a hot sector and things are starting to take off,” said
Buinevicius, whose company sold off its desktop software products in
2003 to concentrate on rich media – the web streaming of synchronized
audio, video and graphics.

“There’s a communications revolution happening in enterprises large and
small and it’s called rich media,” he said.

“We’ve spent the last two-plus years evangelizing and putting the
infrastructure in place to stake a leadership claim in what is shaping
up to be a great market opportunity, he said.

“Through the introduction of our new product lines and service
offerings, we’re now positioned to truly help accelerate the market’s
adoption of this powerful communication medium.”

Though the company reported a net loss of $1.1 million, or three cents
per share, for the quarter, that was a sizable drop from the loss of
$1.6 million reported for the same quarter a year ago.

For the fiscal 2005 nine-month period starting Oct. 1, 2004,
Buinevicius said Sonic had a loss of $3.4 million, or 11 cents per
share, compared to a loss of $4.0 million, or 14 cents per share last
year.

He said revenues also increased substantially from a year ago. For the
third quarter, they were $2.2 million, up 83 percent from $1.2 million
for the third quarter a year ago. For the nine-month period, revenues
rose 95 percent to $5.8 million, compared to $3.0 million, for the
nine-month period in fiscal 2004.

For the quarter, he said Mediasite sales jumped to $1.9 million, an
increase of nearly $900,000 from the $959,000 recorded for the third
quarter of fiscal 2004. Correspondingly, the number of Mediasite units
sold almost doubled for the third quarter – up from 68 in third quarter
of last year to 131 for third quarter of fiscal 2005.

Contributing to the continued improvement were increased product
revenues from Mediasite ML mobile unit sales to newly signed channel
partners and international customers. As a result, Buinevicius said the
company experienced an inventory shortfall by selling out its entire
stock of ML units for the quarter.

He said 38 percent of last quarter’s sales were from repeat customers,
many of whom are universities.

“Typically, they buy one unit, test it and then come back for more as
they take on bigger projects,” he said.

Buinevicius said repeat and multi-unit customers this quarter included
UCLA, USC, the University of Illinois, University of Houston, East
Carolina University, Northwestern, Penn State, Baptist Health System,
Booz Allen Hamilton, Domino’s Pizza, Northrop Grumman, the South Africa
Dept. of Health and the State of Wisconsin.

“We started off a couple of years ago with 30 people and zero
revenues,” he said. He said the staff would increase to 60 employees by
next month.

“In addition to higher education, we’re also getting quite a bit of
business from the medical, pharmaceutical, engineering and defense
areas.”

Buinevicius predicted more growth for the company from its new hosting
service. He said recent hire Darrin Coulson, who is now senior vice
president of worldwide field operations, would boost the hosting
service. Coulson came to Sonic Foundry from BxVideo, a rich media
services company he founded in 2003.

Instead of operating a Mediasite unit with their own staff, he said
universities or other entities can hire Sonic to do the heavy lifting.

He said the managed hosting services, the first part of the company’s
new services portfolio roll-out, will enable organizations to quickly
jump start their rich media communications efforts.

He said Johns Hopkins University has been a hosting customer for the
past six months and had good results.
Typically, he said a customer might pay several thousand dollars a
month for the service.

“We serve as the data center,” he said. “Customers buy or lease the box
to capture the event, but we are the backend. It eliminates the need to
have their IT organization do the dirty work. It will help us get deals
done faster and provide recurring revenue.

Buinevicius said other highlights from the third quarter include:

  • Improved gross margins: For the third quarter, gross margins rose
    to 64 percent compared to 62 percent a year ago. 
  • Operating expenses increased in line with recent promotions.
    Operating expenses increased slightly to $2.5 million compared to $2.3
    million a year ago, representing only a nine percent increase in
    comparison to the 83 percent top line growth.  Incremental sales
    and marketing expenses related to the launch of new products and
    activities at InfoComm 2005 resulted in higher operating expenses from
    the prior quarter.  
  • Cash used for operations decreased.  The company’s use of
    cash continues to show improvement over the prior year with a decrease
    in the amount of cash needed for operations. Year-to-date, cash used in
    operating activities decreased 30 percent from $4.7 million cash used
    in fiscal 2004 to $3.3 million used this year. The improvement is due
    to improved operating results and reduced working capital needs. 
  • A new family of Mediasite rich media communications systems. At
    InfoComm 2005, Sonic Foundry unveiled the Mediasite 440 Series, a new
    line of both hardware and software, designed to appeal to enterprises
    of all kinds. Shipment of the 440 Series products is expected to begin
    this quarter as the company begins meeting backlog demand for the new
    technology.

Editor’s note: WisBusiness.com and WisPolitics.com have used
Mediasite technology to webcast political events and business forums.