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Sonic Foundry Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: May 1, 2012 09:14PM
Sonic Foundry Inc. (SOFO) filed Quarterly Report for the period ended 2012-03-31. Sonic Foundry has a market cap of $29.9 million; its shares were traded at around $7.8 with and P/S ratio of 1.2.
Highlight of Business Operations:Management has established VSOE for hosting services. Billings for hosting are spread ratably over the term of the hosting agreement, with the typical hosting agreement having a term of 12 months, with renewal on an annual basis. The Company sells most hosting contracts without the inclusion of products. When the hosting arrangement is sold in conjunction with product, the product revenue is recognized immediately while the remaining hosting revenue is spread ratably over the term of the hosting agreement. The selling price is allocated between these elements using the relative selling price method. The Company uses ESP for development of the selling price for hardware products with embedded software.
Services revenue represents the portion of fees charged for Mediasite customer support contracts amortized over the length of the contract, typically 12 months, as well as training, installation, event and content hosting services. Services revenue increased from $2.8 million in Q2-2011 to $3.3 million in Q2-2012 primarily due to an increase in event services billings as well as an increase in customer support contracts on Mediasite recorder units. At March 31, 2012, $5.1 million of revenue was deferred, of which we expect to recognize $4.8 million in the next twelve months, including approximately $2.2 million in the quarter ending June 30, 2012.
Gross margin for Q2-2012 was $4.3 million or 72% of revenue compared to Q2-2011 of $3.9 million or 70%. Gross margin increased due to operational efficiencies in recorder and services costs and a decrease in direct and outsourced event labor costs with lower markups for services which the Company does not provide, such as closed captioning. These improvements were partially offset by a greater volume of discounted upgrade units for customers whose product had reached the end of hardware warranty eligibility and by an increase in high definition material cost. The significant components of cost of revenue include:
Gross margin for YTD-2012 was $8.8 million or 73% of revenue compared to YTD-2011 of $8.1 million or 71%. Gross margin increased due to operational efficiencies in recorder and services costs and a decrease in direct and outsourced event labor costs with lower markups for services which the Company does not provide, such as closed
Cash used in operating activities was $(539) thousand in YTD-2012 compared to cash provided by operating activities in YTD-2011 of $220 thousand, a decrease of $759 thousand. Cash used in YTD-2012 decreased partly due to a $(251) thousand change in net loss, from a net loss of $(49) thousand in YTD-2011 to a net loss of $(300) thousand in YTD-2012. Working capital and other changes included the positive effects of a $1.3 million decrease in accounts receivable, $415 thousand of stock based compensation, and $386 thousand of depreciation expense. These were more than offset by the negative effects of decreases in accounts payable and accrued liabilities of $778 thousand, a decrease in unearned revenue of $880 thousand and an increase in inventory of $630 thousand. In YTD-
Stocks Discussed: SOFO,