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CEO Says Sonic Foundry Could Be Six Months Away from Profit

By Brian E. Clark

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.


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