d december 19, 2011 b r sonic foundry, inc. foundry passes... · 2011. 12. 19. · 4q11. record...

Beacon Rock Research, LLC 1 December 19, 2011

_______________________________________________________________________________________________________________________________________________________________________________ This Information is obtained for sources believed to be reliable, but its accuracy and completeness are not guaranteed. Copying, faxing, replicating, or quoting from this report without permission is in direct violation of copyright laws. Beacon Rock Research employees and affiliates may have positions and effect transactions in the securities or options of the issuers reported herein. Please refer to the company index in the back of this issue for additional disclosures.

Sonic Foundry, Inc. NasdaqCM: SOFO

Mike Niehuser 503-307-3188

[email protected]

Sonic Foundry, Inc.’s (NasdaqCM: SOFO) reported strong quarterly year-over-year product and service revenue growth in 4Q11. Record product revenues was primarily the result of sales to the higher education segment in the fourth quarter, be-ing the second of its two seasonally strongest quarters. Gross margins were compressed due to discounts on “refresh” units which are expected to retrain customer relationships and drive future software revenues. Financial highlights are as follows:

Revenues of $6.7M in 4Q11 Gross margin of 72.7% in 4Q11 Deferred revenue of $5.5M at the end of 4Q11

Sonic Foundry is expected to enhance its leadership position with the roll out of Mediasite 6, accommodating mobile de-vices. Management expects seasonal patterns to continue. We reiterate our Buy rating and our 12-month price target to $25.00 per share and are increasing our risk assessment from Moderate to High.

Price Target $25.00

Rating Buy

Risk High

Corporate Officer Gary R. Weis, CEO (608) 443-1600 Contact Person Kenneth A. Minor, CFO (608) 443-1600 Corporate Address 222 West Washington Ave., Madison, WI 53703 Website www.sonicfoundry.com

DECEMBER 19, 2011

Earnings Per Share Q1: Dec Q2:Mar Q3:Jun Q4:Sep Annual* 2012E $ (0.04) $ (0.00) $ 0.16 $ 0.08 $ 0.19 2011A $ 0.06 $ (0.07) $ 0.06 $ (0.11) $ (0.06) 2010A $ (0.09) $ (0.04) $ 0.06 $ 0.03 $ (0.03) 2009A $ (0.35) $ (0.04) $ (0.05) $ (0.26) $ (0.70) * numbers may not add up due to rounding

BEACON ROCK RESEARCH

Price $7.30 Shares (mils) 3.8

P/E Ratio (ttm) NA Market Cap (mils) $28.0

P/S Ratio (ttm) 1.08 X 52 Week Range $7.00 - $16.18

Sales/share (ttm) $6.72 Ave. Daily Vol. 5,831

Price/Book 3.01 X Short Interest 30,150

Book Value $2.42 Gross Margin 72.7 %

Cash/share $1.44 Oper. Margin -4.1 %

Quick Ratio 1.19 Insider Ownership 16.7 %

Debt to cap ratio 7.08 % Inst'l Ownership 6.6 %

www.beaconrockresearch.com 5956 N.W. 213th Place, Portland, Oregon 97229

Disclosures 1,2,3,4

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

$16.00

$18.00

12/19/08 3/19/09 6/19/09 9/19/09 12/19/09 3/19/10 6/19/10 9/19/10 12/19/10 3/19/11 6/19/11 9/19/11

Sonic Foundry

Russell 2000

Initial Rating - BuyPrice - $13.60

Target - $30.00High Risk3/15/05

Rating BuyPrice - $5.00

Target - $12.50Moderate12/9/08

Rating BuyPrice - $15.17

Target - $25.00Moderate5/24/11



Investment Thesis

Sonic Foundry, Inc. (NasdaqCM: SOFO) reported higher revenues and billings in what seasonally is typically one of its two strongest financial quarters. This is consistent with the seasonal buying trends of higher education, its largest customer segment, whose budget year commences in June and continues through the start of the traditional school season in the fall. Company man-agement sees no change in these trends but does anticipate the impact of larger transactions which may slip into other quarters.

We believe these seasonal trends in revenues for the higher education segment may be offset (or made less volatile) by increasing service (events) revenues to a rebounding corporate segment. Net one-time expenses, financial results may be summarized as increased billings and revenues, increasing at a faster rate than expenses, exhibiting a trend in higher operating leverage, leading to additional financial strength. This occurred against a backdrop of an uncertain national economy and challenged state and local budgets.

Sonic Foundry has also maintained its leadership position in offering lecture capture and hosting to both the higher education and corporate segments. Its most important potential milestone may be the introduction of Mediasite 6, which will accommodate viewing on a variety of mobile devices. The company intends to make additional investments in its product offering to maintain alignment with customer preferences. In addition, they intend to make additional investments in sales and marketing and inves-tor communications, which should lead to a higher level of competitive awareness. Overall, management anticipates ongoing double digit growth in revenues, and despite increasing investments, improving profitability on a GAAP basis.

Lightweight Mobile Mediasite Recorder Pacific Coast Banking School, 2012 Summer Session Gates Law Library, University of Washington Source: Analyst

Mediasite 6 Introduction May Advance Sonic Foundry Leadership Position in Near Term

Sonic Foundry has steadily increased its investment in product development over the last five quarters. The company has main-tained consistent levels of spending in this area in order to maintain its leadership position in providing lecture capture products and services. This included focusing not only on the value proposition to both producers and viewers of rich media content, but also for information technology stakeholders responsible with managing and securing increasing numbers of presentations. Nota-ble improvements include making mobile presentation recorders lighter and more robust, as well as accommodating Mac users.

Sonic Foundry has worked diligently to introduce Mediasite 6 in December of 2011. Mediasite 6 will allow presentations captured by its recorders to be viewed on mobile devices, as increasingly demanded by students. This is a natural extension of the core value proposition to reduce the friction in capturing and viewing lectures, and more to the point, more sensitive to the manner and preference of the individual learners. Sonic Foundry has been careful in rolling out Mediasite 6 over the second half of 2011 and for this reason will likely minimize issues in deploying this impor-tant innovation. Introduction should extend and solidify the com-pany’s leadership position given the magnitude in the increase in value to viewers. Sonic Foundry management appeared most complimentary of staff working on Mediasite 6 and provided little doubt that it was moving ahead as scheduled.

On the conference call, management noted a number of areas which receive attention and investment. They noted the ongoing effort to manage high definition video without degradation of synchronization or other attributes of recording and viewing rich media presentations, especially on mobile devices. Ongoing investment will be directed toward software and content manage-ment to maintain operation efficiency. Management has a disciplined culture to be sensitive to client’s individual needs, and will increase willingness to work to accommodate other platforms to add value. Management noted other areas in the works but did not elaborate for competitive reasons.



Primary Research and Observation of Mediasite Recordings

We have observed the implementation of Sonic Foundry’s mobile presentation recorders for six years with the Pacific Coast Banking School at the University of Washington. We have watched instructors overcome objections and embrace the potential for leveraging class time and deepening retention and comprehension of course material. In addition, we have observed over a thousand mid-career professionals come to rely on and demand the extension of the learning process in an individualized manner that Mediasite makes possible.

Paccar Hall—Foster School of Business University of Washington Note: Mediasite podium interface, room camera on rear wall of classroom and ceiling projector Source: Analyst

We have long believed that good teachers place great importance on reaching all students and that students desire to reduce barriers which retard the learning process. Sonic Foundry’s Mediasite products integrate and enrich media in a first-in-class technology solu-tion. (Please see Exhibit I for select comments from a recent PCBS class to demonstrate how Mediasite posi-tively impacted students meeting individualized needs). This is likely for the reason lecture capture is provides a high return to intstructor/students in en-hancing the classroom experience.

Source: Sonic Foundry

We toured the recently constructed Paccar Hall – Foster School of Business at the University of Washington. We were not alto-gether surprised that after six years that this high profile business school had selected Sonic Foundry presentation recorders and software as their installed lecture capture solution. Mediasite was integrated into the classroom podium, projector and video camera.



Mediasite was selected as the more robust solution for both ease of production and viewing as well as scheduling and managing captured lectures. We interviewed the Senior Computer Specialist responsible for managing the lecture schedule. The specialist demonstrated how lectures were easily managed and scheduled from a single location.

Mediasite Rack Recording Units Paccar Hall—Foster School of Business University of Washington Source: Analyst

Senior Computer Specialist and Analyst Mediasite Software central control Paccar Hall—Foster School of Business University of Washington Source: Analyst

We also viewed towers in the backroom integrat-ing Mediasite rack recording units. There are eleven rack and one mobile Mediasite recording units at Paccar Hall.

While we have observed the cost/benefit of mobile record-ers in traditional classrooms, we were thoroughly impressed by the leverage and ease of management when Mediasite is designed into the classroom. The reduction of required personnel to one clearly provides an obvious benefit. It is the combination of organizational efficiency, necessary for the technical personnel administering the lecture capture, and the value to instructors/students enhancing personal learning experience, that drive Mediasite’s value proposi-tion.

Source: Sonic Foundry



Fiscal Year-End 2011 Financial Summary

Sonic Foundry reported $25.2 million in fiscal 2011, a 23% increase over $20.5 million in fiscal 2010. Revenues from product sales were $12.8 million in fiscal 2011, a 22.0% increase over $10.5 million in fiscal 2010. Likewise, they reported revenues from services of $12.2 million in fiscal 2011, a 23.7% increase over 9.8 million in fiscal 2010. Results reflect higher sales of “refresh” units and increases in service revenues from hosting and events services.

Sonic Foundry reported gross income of $17.9 million in fiscal 2011, compared to $15.4 million in fiscal 2010. Gross profit as a percentage of revenues declined to 71.0% in fiscal 2011, compared to 75.3% in fiscal 2010. The decline in gross profit reflects the lower mark-ups with sales of “refresh” units and outsourced event labor costs (primarily closed captioning). Management noted that margin compression by offering discounts on refresh units may be expected to lead to two million dollars of service revenues over four years. Operating expenses net one-time severance expenses came in under the prior year’s operating expenses as a percentage of sales, exhibiting the potential for increasing operating leverage.

Sonic Foundry reported a net loss of $243,000 in fiscal 2011 (including a one-time severance expense of $528,000), or a net loss of $0.06 per share, compared to a net loss of $122,000 in fiscal 2010, or $0.03 per share. On a Non-GAAP basis, they would have realized net income of $1.9 million, or $0.51 per share in fiscal 2011 (including an adjustment for a one-time severance costs), compared to net income of $1.7 million, or $0.48 per share in fiscal 2010.

Fiscal 2011 Fourth Quarter Financial Discussion

Sonic Foundry reported financial results for the fourth quarter of its 2011 fiscal year ending September 30, 2011. Sonic Foundry reported total revenues of $6.7 million in 4Q11, slightly beating our estimate of $6.5 million, and about 23% above revenues of $5.4 million in 4Q10. Revenues from product sales were $3.4 million in 4Q11, meeting our estimate, and about 14% over actual results of $3.0 million for 4Q10. This was due to the seasonally stronger sales to the education segment in the second half of its fiscal year and sales of “refresh” recorder units. Revenues from services were $3.2 million in 4Q11, up 33% over $2.4 million in 4Q10, also meeting our estimate of $3.1 million. Consistent growth in event services may lead to softening seasonality in sea-sonally weaker first and second quarters.

Total billings were $7.0 million in 4Q11, up 10% from $6.3 million in 4Q10. Product billings were $3.5 million in 4Q11, up 14% from $3.0 million in 4Q10, and service billings (for support, hosting, training, and events) were $3.5 million in 4Q11, up 7% from $3.3 million in 4Q10. It should be noted that the rate of growth in billings may have slowed from the third to the fourth quarter, product billings were $4.0 million in 3Q11, up 28% from $3.1 million in 3Q10, and service billings were $3.5 million in 3Q11, up 24% from $2.9 million in 3Q10.

Billings should not be confused with revenues. As contracts are signed and billed, cash is collected, increasing both cash bal-ances and unearned income. Billings are a helpful indicator of future revenues in later quarters. Increasing billings in the third and fourth fiscal quarters reflects the importance of sales to the education segment in the second half of the fiscal year and pro-vides an inclination of revenues to be reported in seasonally softer quarters in the first half of its fiscal year. The reporting of revenues over the life of contracts has no impact on cash flow and may reduce the volatility of revenues reported.

In the 4Q11 and 4Q10, billings to preexisting customers were 73% and 74%, respectively. In 4Q11, billings to education cus-tomers totaled 59%, 31% for corporate customers, 5% to government and other customers. Activity in the quarter reflects a con-sistent mix of new and existing customers. Also, the share of the corporate segment was up slightly. This could reflect poten-tially consistent increases in the events services and strength in the national economy not reported in the press.



Gross margin was about 72.7% in 4Q11, down from 74.9% in 4Q10. The lower gross profit reflected increased direct and out-sourced event labor costs (primarily closed captioning) and lower markups on “refresh” units (discounted units for customers whose recorders had reached the end of hardware warranty eligibility). Average sale price of units decreased to $9,700 per unit in 4Q11, down from $10,100 in 4Q10. Sonic Foundry shipped a record 315 units in 4Q11, up from 278 units in 4Q10. Sales of rack-to-mobile units remained basically unchanged at 2.2 units to one in 4Q11, compared to 1.7 units to one in 4Q10. Overall, increasing revenues exceeded declines in gross margins, allowing Sonic Foundry to report an increase in gross income to $4.9 million in 4Q11 (unchanged from the previous quarter), up 19% from $4.1 million in 4Q10, and beating our estimate of $4.5 mil-lion.

Sonic Foundry continues to maintain solid operating expense control despite growing sales activity and seasonality in the educa-tion segment and product development, thus maintaining its leadership position. The fourth fiscal quarter included a one-time expense for severance of $528,000. Operating expenses were $5.2 million in 4Q11, up from 3.8 million in 4Q10. Adjusted for the one-time severance cost, total operating expense would have been about $4.6 million, compared to $3.8 million in 4Q10, and only 7% higher than our estimate of $4.3 million for the quarter. We find it interesting that after the adjustment for severance cost, total expenses as a percentage of revenues would have been 68.9% of revenues in 4Q11, an improvement from 70.5% in 4Q10, reflecting good expense management. This is also an indication of improving operating leverage as revenues and billings increase.

Selling and marketing expense was $2.9 million in 4Q11, or 42.9% of sales, compared to $2.5 million in 4Q10, or 45.3% of sales. While this was above our estimate of $2.7 million for the quarter, sales and marketing declined as a percentage of sales, demonstrating increasing leverage with higher sales activity. In addition, general and administrative expenses were $755,000 in 4Q11, compared to $573,000 in 4Q10, and close to our estimate of $720,000. As a percentage of sales, general and administra-tive expenses were 11.3% of sales in 4Q11 compared to 10.5% in 4Q10. Product development was $980,000 in 4Q11, slightly above $797,000 in 4Q10, and exceeding our estimate of $875,000 for the quarter. The increase in product development, for the fifth quarter in a row, is important for the continual product improvement, and may reflect an investment in the introduction of Mediasite 6, scheduled for release in December and important for the assimilation of Mediasite with viewer preferences for view-ing presentations on mobile devices.

Sonic Foundry reported operating loss of $277,000 in 4Q11, compared to an operating profit of $236,000 in 4Q10. Sonic Foun-dry reported a net loss of $406,000 in 4Q11, or a loss of $0.11 per share, compared to net income of $126,000 or $0.03 per share in 4Q10. By simply adding back the one-time severance expense, Sonic Foundry would have had net income of about $122,000, and meeting our earnings estimate of $0.03 per share, and unchanged from 4Q10 financial results. (Management noted that Non-GAAP earnings were $820,000 in 4Q11, or $0.21 per share, compared to $1.3 million in 4Q10, or $0.35 per share (diluted).)

Unearned revenues were $5.6 million at the end of 4Q11, up slightly from $5.3 million in 3Q11. Unearned income characteristi-cally increases in the second half of its fiscal year and amortizes in the first half. Sonic Foundry reported cash balances of $5.5 million at the end of 4Q11, up from $4.2 million at the end of 3Q11. As of September 30, 2011, Sonic Foundry had no debt out-standing on its revolving credit line. Sonic Foundry appears to have sufficient capital and liquidity to meet required working capital needs.



Management Guidance and Our Model

Management clearly envisions little change in the direction of its business that would lead it from its focus on the higher educa-tion segment and event services and hosting. This implies that the seasonality, softer first and second quarters of financially stronger third and fourth quarters, will remain. Management does envision increased billings and revenues of about 17% in the coming fiscal year. They anticipate gross margins consistent with the past year. They also plan to increase investment in sales and marketing, as well as product development, which may lead to higher financial results in fiscal 2013. Product development will be led by the marketplace and client preferences. Despite this additional investment, they anticipate improving GAAP net income performance over fiscal year 2011.

Our model reflects past seasonality and revenues increasing as provided for by management guidance. Also, while the company has experienced higher gross margins, the ongoing investment by offering discounts for “refresh units” will likely hold gross margins to levels recently experienced. Our model takes into account higher levels of spending of sales and marketing and prod-uct development. The net result of these adjustments may lead to improved profitability in fiscal 2012, and investments in initia-tives to improve product and services to maintain its leadership position should create an opportunity for positive results in the years ahead.

Conclusion and Recommendation

Sonic Foundry through its disciplined focus on its core Mediasite product has established a leadership position in a growing lec-ture capture niche. Their product is technology at its best, leveraging learning in an individualized setting, to a potentially infi-nite audience. We recognized the importance of the technology over six years ago, and Sonic Foundry’s leadership position, and are gratified to see that they remain first-in-class. During this period, video has become ubiquitous on the Internet, changing the way in which new generations get their news and information, in essence the ultimate manner of self directed learning. In the backdrop of the revolution, institutions of higher learning have been challenged to remain relevant. Despite the availability of information, learners may be aided by instructors, and today’s learners are becoming increasingly demanding for technology to leverage instruction. Lecture capture meets this need, and Mediasite remains first-in-class, and Mediasite 6 may allow Sonic Foundry to hold this position.

New management has bought in to Sonic Foundry and is taking steps to expand the value proposition and customer base which may lead to higher revenues and operating leverage in fiscal year 2012 and beyond. Previously management noted valuations in the education segment of 4x to 8x sales. (Management was clear on the conference call that no acquisitions are in the works) Presently, Sonic Foundry is trading near its all-time low on a price-to-sales basis very similar to 2008 to 2009 in the midst of the financial crisis. We believe a good deal of the European financial crisis, but not all, may be priced into small cap stocks. Sonic Foundry continued to build its value proposition for clients through the crisis and has continued to report stronger financial per-formance which is not reflected in the current stock price.

We retain our 12-month price target of $25 per share, about 3.3x forward sales per share. The price target reflects our opinion of fundamental value and share price potential in a normal market. We are increasing our risk assessment from Moderate to High to account for the high level of investor uncertainty. The combination of these two ratings expresses our opinion of the company and the market its shares trade.



Exhibit I “Being able to review the combination of the lecture with the prepared materials was invaluable to reinforcing what I learned.”

“It allowed me to spend more time in class focusing on the teacher vs. furiously taking notes… This facility is a lifesaver for the working student. The ability to go back and see the actual sessions months after they occurred refreshes the memory to be able to do the assignment.”

“Clearly the opportunity to review the information months later was invaluable…Another way to drive the information.”

“Critical to my success with how busy we become when returning home with our jobs and family responsibilities.”

“Those recordings saved my life.”

“Incredibly helpful to be able to review class materials at my own speed and on my own time.”

“Classes were moving very fast and when you get back to looking at the material, the notes were sketchy. The feature to fast forward was one of the better features to get right to the pertinent portion of the material.”

“[The recordings] provided an option to obtain information that could have been missed while taking notes.”

“The videos allowed me to complete some empty spaces in my notes.”

“The ability to go back to video allows students to listen to the professor during class without having to take notes feverishly.”

“Even the best instructor talks faster than I can write. By having the recordings I was able to pick up valuable insights months after I was home.”

“I would have been lost without the resource and ability to revisit previous lectures.”

“[The recordings] take pressure off writing down all spoken words allowed me to concentrate on learning the concepts.”

“About 1 week before last years class sessions my wife gave birth to our daughter. As a new father, I was distracted. The re-cordings saved me when writing extension problems. I particularly found value in the indexing features. The ability to search out a particular slide and immediately begin to hear the lecture was invaluable.”

“I think the video recording of classes is a great resource for students. The first year classes are extremely fast paced and the ability to revisit the lectures in invaluable. The time frame between the actual lecture and writing of the extension assignment is significant and the videos help refresh the concepts.”

“When so much time goes by between the class and the papers a refresher was nice to have.”

“The classroom setting is valuable but difficult to capture all the information the videos are essential to another layer of learning and solidifying the foundation of our classes.”

“They were a life saver. Consider that the assignments are due several months after the lectures. You forget bits and pieces.”

“Having the ability to go back and view the course lectures after leaving the sessions at my own pace was priceless.”

“I learned more from the recordings that the live sessions. It enabled me to review the material at my own pace. I could immedi-ately review more difficult concepts and look up answers while pausing the playback. I reviewed every recording from begin-ning to end. Some more than once.”

“Was able to revisit, rewind, pause, replay at will throughout each outline of each extension assignment! Truly felt that the course recordings played an ESSENTIAL part of my almost perfect papers!!”

“The online videos… were clear and easy to use. I would not have been able to complete the class without this technology.”

“Clarity is critical! The ability to go back and revisit a prior class session made a huge impact on my ability to incorporate taught concepts into my work life and assignments.”



“I attended every class, and took thorough notes, but being able to re-watch my specific class was truly invaluable to my educa-tion… I thought I had understood, but as so often happens, in trying to explain myself I realized I wished I could go back in time and learn it one more time. Now I could.”

“The ability to revisit the classroom lectures enhanced my comprehension of the subject matter immensely.”

“I loved the ability to scan through the right slide and part in the lecture!”

“The technology allowed me to go back to the many complex subjects and go back in time to the classroom for a refresher course.”

“It provided me the ability to reference class material and lectures in a quick and immediate format.”

“I think the technology is very good and state of the art. I allowed me to review anything that I missed during class. It was bene-ficial as the information presented came at a fast pace.”

“It helped to me review what was said in the classroom. I took notes but some of the sections, I didn’t quite understand at the moment. However, ability to review helped me understand the context. Without it. It would have been difficult to complete extension assignments.”

“Time saver.”

“My papers received highest score when using video as a reference.”

“The ability to go back and review the courses taken is an invaluable tool which has allowed me to excel on extension assign-ments.”

“The technology was very valuable three to six months after the classes to review course material over and over again to help with our extension assignments. Easy to use, good quality, and easy online access.”

“I couldn’t have completed the homework as well as I had without the ability to review the lectures.”

“Would have been lost without this resource.”

“The videos were outstanding and contributed to the learning experience at PCBS. Many lectures are fast paced, this allows stu-dents to go back and review what they missed. It would be a disadvantage to those students who do not benefit from having this option of learning.”

“It was very difficult to recall the info in class several months later and my good scores on my papers were a direct result of watching the videos through again. I can imagine not having them.”

“The video conferencing was extraordinarily helpful to me. It was comforting to know that if I missed a particular point.”

“After many months of being out of class made it tough to recall all my notes to what the professor said. The quality of my pa-pers were enhanced, not to mention my true learning due to the “repetition” learning.”

“There is no way I would have been able to not only complete my papers but get 100% without the use of the video replay. Every student learns differently and it takes me a few times more than others for some thinks to sink in and these replays gave me the ability to go back and get the understanding I need to get the best grad and value of the class possible.”

“They were an integral part of my understanding. I truly benefited from the integration of the videos as part of the instructions.”

“The classes move at a very rapid pace and having the opportunity to review them while working on my extension assignments. Without them I feel that I would have stressed.”

“I found that the video recordings allowed me to re-visit the material which furthered my understanding of the principles and concepts.”

“I frequently reviewed the sessions to compile all critical information from past sessions.”



“There is so much information the instructors must cover in such a short time, it’s difficult to write everything written down. I was able to go back and re-watch the courses to make sure to get all the information/messages the instructor was trying to con-vey.”

“At times the amount of information was overwhelming – Watching the videos was critical for my review and understanding of courses.”

“The presentations allowed me to “go back in time” to catch issues I had missed or were unclear. The product was easy to use. It was relatively easy to navigate and find desired locations base on the professors PowerPoint.”

“The opportunity to replay presentations at my own pace and schedule was very valuable tool to facilitate learning.”

“There is an enormous amount of information delivered in a short timeframe – the recordings allowed me to review and more fully comprehend key concepts.”

“The technology is absolutely impressive very helpful to back and review the subject matter especially since classes are acceler-ated.”

“[The presentations] allowed me to soak in the information at my pace.”

“There is a lot of information supplied over a short time in class and the video gave me the ability to revisit anything I couldn’t recollect.”

“There were several times I was fuzzy on the material on I could review, dissect and move forward.”

“I wouldn’t have been able to complete my extension assignments without reviewing the videos from my classes and it was ex-tremely helpful to be able to review each course. This helped my better understand the material which resulted, in my opinion, better performance.”

“There was so much info delivered so quickly. Living far from school peers also great benefit as harder to discuss afterward.”

“I found the recorded classes to be critical to my learning. I was able to review my note and synchronize that with the class re-cording to review and understand the concepts being taught. Without the recording I would not have gained the learning I did. I was able to get an excellent plus on all my assignments but this would not have happened without the recordings.”

Beacon

Rock

Research

, LL

C 11

D

ecember 19, 2011

__________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ T

his Information is obtained for sources believed to be reliable, but its accuracy and com

pleteness are not guaranteed. Copying, faxing, replicating, or quoting from

this report without perm

ission is in direct violation of copyright laws. B

eacon Rock em

ployees and affiliates may have posi-

tions and effect transactions in the securities or options of the issuers reported herein. Please refer to the com

pany index in the back of this issue for additional disclosures.

Sonic F

ound

ry, Inc.

Sep

tember F

YE

(#'s in 000's)1Q

11A2

Q11A

3Q11A

4Q11A

1Q12E

2Q12E

3Q12

E4Q

12E201

1A2012E

Dec.-10

Mar.-11

Jun.-11

Sept.-11D

ec.-11M

ar.-12

Jun.-12

Sep

t.-12Incom

e Statement

Revenues

Mediasite revenues

$2,844

$2,631$3,911

$3,398$2,950

$2,975$4,325

$3,750

$12,784$14,000

Custo

mer support fees

3,025

2,8393,108

3,2153,500

3,6503,950

4,100

12,18715,200

Other

6155

7164

7065

8075

251290

Total reven

ues5,9

305,525

7,0906,677

6,5206,690

8,3557

,92525,222

29,490C

ost of goods sold1,6

691,655

2,1621,825

1,9751,925

2,3502

,2007,311

8,450G

ross profit4,2

613,870

4,9284,852

4,5454,765

6,0055

,72517,911

21,040O

perating expensesS

elling and marketing expenses

2,462

2,4432,984

2,8662,825

2,8603,475

3,500

10,75512,660

General and adm

inistrative expenses6

19717

720755

765765

765765

2,8113,060

Product developm

ent expenses

834

862863

9801,000

1,0251,030

1,035

3,5394,090

Severence costs

528528

Total operating expense

3,915

4,0224,567

5,1294,590

4,6505,270

5,300

17,63319,810

Op

erating income

346(1

52)361

(277)(45)

115735

425278

1,230O

ther income (expense)

(63)(60)

(89)(98)

(60)(60)

(60)(60)

(310)(240)

Income (loss) before incom

e taxes283

(212)

272(375)

(105)55

675365

(32)990

Net incom

e 223

(272)

212(406)

(165)(5)

615305

(243)750

Earn

ings per share

0.06$

(0.07)$

0.06$

(0.11)$

(0.04)$

(0.00)$

0.16$

0.08$

(0.06)$

0.19

$ O

utstanding shares3,6

553,733

3,7863,821

3,8603,890

3,9253

,9503,749

3,906

Revenue

100.0%100.0%

100.0%100.0%

100.0%10

0.0%100.0

%100.0%

100.0%1

00.0%C

ost of goods sold28.1%

30.0%30.5%

27.3%30.3%

28.8%

28.1%

27.8%29.0%

28.7%G

ross profit71.9%

70.0%69.5%

72.7%69.7%

71.2%

71.9%

72.2%71.0%

71.3%S

elling and marketing expenses

41.5%44.2%

42.1%42.9%

43.3%4

2.8%41.6

%44.2%

42.6%42.9%

General and adm

inistrative expenses10.4%

13.0%10.2%

11.3%11.7%

11.4%

9.2%

9.7%11.1%

10.4%P

roduct development exp

enses14.1%

15.6%12.2%

14.7%15.3%

15.3%

12.3%

13.1%14.0%

13.9%T

otal operating expenses66.0%

72.8%64.4%

76.8%70.4%

69.5%

63.1%

66.9%69.9%

67.2%O

perating income

5.8%-2.8%

5.1%-4.1%

-0.7%1.7%

8.8%

5.4%1.1%

4.2%O

ther income (expense)

-1.1%-1.1%

-1.3%-1.5%

-0.9%-0.9%

-0.7%

-0.8%-1.2%

-0.8%N

et income (continuing operations)

3.8%-4.9%

3.0%-6.1%

-2.5%-0.1%

7.4%

3.8%-1.0%

2.5%

Sales/share (ttm

)6.04

$ 6.16

$ 6.48

$ 6.72

$ 6.79

$ 7.03

$ 7.29

$ 7.54

$ 6.72

$ 7

.54$



Sonic Foundry, Inc.September FYE(#'s in 000's)BALANCE SHEET

ASSETS 2008 2009 2010 2011 1Q11 2Q11 3Q11 4Q11 Cash and equivalents - (000's) $3,560 $2,598 $3,358 $5,515 $3,885 $4,208 $4,213 $5,515 Accounts receivable 3,864 3,741 5,038 5,799 4,372 3,734 6,234 5,799 Inventory 330 440 541 536 811 786 574 536 Other current assets 429 472 433 740 491 627 638 740

Total current assets 8,183 7,251 9,370 12,590 9,559 9,355 11,659 12,590 Net property, plant, and equipment 1,694 1,316 1,237 1,636 1,419 1,255 1,294 1,636 Goodwill & intangibles 7,597 7,576 7,576 7,576 7,576 7,576 7,576 7,576 Other assets 0 30 84 38 71 59 52 38

Total assets $17,474 $16,173 $18,267 $21,840 $18,625 $18,245 $20,581 $21,840

LIABILITIES AND SHAREHOLDERS' EQUITY Line of credit $0 $0 $0 $0 $0 $0 $0 $0 Accounts payable 1,256 636 1,138 1,373 866 684 1,234 1,373 Accrued liabilities 1,113 1,047 752 1,601 984 607 1,033 1,601 Unearned revenues 4,661 4,902 5,486 5,547 5,245 4,859 5,251 5,547 Current portion of capital lease obligation 379 340 552 986 665 777 874 986

Current liabilities 7,409 7,225 7,928 9,507 7,760 6,927 8,392 9,507 Long-term debt 223 927 1,627 1,342 1,340 1,143 1,147 1,342 Deferred long-term liability charges 279 170 85 0 64 42 63 0 Other long term liabilities 0 1,250 1,490 1,730 1,550 1,610 1,670 1,730 Shareholders' equity 9,563 6,601 7,137 9,261 7,911 8,523 9,309 9,261

Total liabilities and shareholders' equity $17,474 $16,173 $18,267 $21,840 $18,625 $18,245 $20,581 $21,840

Cash per share $1.00 $0.72 $0.93 $1.47 $1.06 $1.13 $1.11 $1.44Quick ratio 1.00 0.88 1.06 1.19 1.06 1.15 1.24 1.19Current ratio 1.10 1.00 1.18 1.32 1.23 1.35 1.39 1.32Debt to capitalization ratio 5.25% 16.62% 23.99% 14.49% 17.75% 13.90% 13.00% 14.49%Book per share $2.69 $1.83 $1.97 $2.42 $2.16 $2.28 $2.46 $2.42



DISCLOSURES: Information, opinions, or recommendations contained in Beacon Rock Research’s research reports or research notes are submitted solely for advisory and infor-mation purposes. Beacon Rock Research, LLC provides information and analysis on selected companies, with a focus on small-cap and micro-cap companies. This report has been written in accordance with current SEC regulations and the Standards of Practice developed by the Chartered Financial Analyst Institute (CFAI). Our research has been conducted by employing analytical practices generally accepted as standard within the analytical industry. In this instance, a comparison of financial strength, a bottom-up earnings projection based on a recovery in the U.S. economy, and relative multiples, were employed. The target price was calculated on comparative EPS, sales and book value multiples, and our knowledge of small-cap markets when enjoying both a sector and a cyclical rebound. Our conclusions are, by the very nature of forecasting, speculative, but are also reasonable, supportable and consistent. Key to disclosures:

1. The research analyst has a long position in the securities of the Subject Company. 2. The Subject Company has provided Mediasite™ recording units plus additional software and server availability valued at $25,000 to

SLB Equity Research, LLC., one of its affiliates, for securing research coverage and providing other awareness building services. SLB Equity Research, LLC may provide additional awareness building services on an ala carte basis.

3. The research analyst principally responsible for preparing this research report received compensation based upon various factors, including SLB Equity Research, LLC total revenue.

4. This report was prepared exclusively for the benefit of institutional investors and may or may not receive compensation directly or in soft dollar arrangements.

The analyst, Mike Niehuser, hereby certifies that the research conclusions and recommendation contained herein accurately reflects his personal views about the industry, company and shares and also hereby certifies that no part of his research compensation was or will be directly or indirectly related to the earnings esti-mates, target price or recommendation about the security. The research provided herein should not be considered a complete analysis of every material fact regarding the companies, industries or securities named above. The opinions expressed herein reflect the analysis and judgment of the author on the date of publication and are subject to change without notice. Facts have been obtained from sources considered reliable but should not be construed as complete and are not guaranteed to be accurate. Beacon Rock Research, LLC; its mem-bers; employees and their families may have positions in the securities covered within the research material above and may make purchases or sales while this report is in circulation. Additional information on the subject companies is available upon request.

EQUITY RECOMMENDATION SYSTEM: Buy Immediate purchase is recommended. The security expected to outperform the market over the next 12 to 18 months. Hold Holding the stock is recommended because the share price’s appreciation potential is less than or equal to the market. Sell The stock has reached the target price objective and/or conditions have changed sufficiently to alter the outlook for the stock.

EQUITY RISK SYSTEM: High The security is more volatile than the market and/or the company is more leveraged than its peer group. Moderate The security has about the same volatility as the market and/or the company carries a level of leverage in line with its peer group. Low The security is less volatile than the market and/or the company is less leveraged than its peer group.

DISTRIBUTION OF RECOMMENDATIONS:

At this time, there are an insufficient number of companies under coverage to generate usable distribution information or draw any conclusions regarding bias about the research methodology. Prospective companies are screened and evaluated by sales personal and research analysts with the investment thesis and overall research recommendation developed before the commission is established.

d december 19, 2011 b r sonic foundry, inc. foundry passes... · 2011. 12. 19. · 4q11. record...

Documents