Sonic Foundry's Revenues Increase 77 Percent for First Quarter of Fiscal 2005

Sonic Foundry's Revenues Increase 77 Percent for First Quarter of Fiscal 2005

Company Continues to Make Strides With Its Mediasite Family of Rich Media Recording Systems, Secures Increasing Number of Multi-Unit Sales and Significant Customer Gains

MADISON, Wis., Feb. 3 /PRNewswire-FirstCall/ -- Sonic Foundry(R), Inc. (NASDAQ:SOFO), a leading rich media solutions company, today announced results for its first quarter of fiscal 2005. Popularity of the company's Mediasite(TM) family of rich media communication products continued Sonic Foundry's fast-paced momentum and contributed to yet another record quarter of consecutive product revenue growth.

Highlights for the first quarter include:
* Revenues Increase 77 Percent Year-to-Year. For the first quarter of
fiscal 2005, Sonic Foundry reported revenues of $1.6 million, an
increase of 77 percent from $899,000 it reported for first quarter of
fiscal 2004. The company continues to make in-roads into large, key
growth markets as demonstrated by sales of its popular Mediasite
systems. In the first quarter of 2005, Mediasite sales more than
doubled compared to the same period a year ago. Product revenues were
$1.3 million compared to $603,000 in first quarter of 2004. Likewise,
customer support revenue increased correspondingly -- contributing
revenues of $189,000 compared to $67,000 for first quarter of fiscal
2004. At the end of the first quarter, the company also had $467,000 in
unearned customer support revenue, due to amortizing its service revenue
over the life of its contracts.
* Gross Margins Improve. Increased sales and a growing contribution from
support and server software licensing contributed to higher gross
margins of 66 percent in the first quarter of 2005. Higher volume
material purchases and continued growth in contributions from server
software and support fees should allow the company to maintain margins
in the mid-to-upper 60 percent range going forward.
* Operating Expenses Correspond To Company Investments. As reported
previously, the company made investments in hiring additional sales and
marketing staff to build out its channel and escalate its penetration
within key, large strategic markets. Increased expenses reflect this
investment as well as a 24 percent increase in research and development
over last year as the company released enhancements to its Mediasite
family of products.
* Net Loss Nearly Flat Year-to-Year. The company reported a net loss of
$1.4 million or five cents per share for first quarter of fiscal 2005.
First quarter 2005 results include $128,000 of one-time and non-cash
costs associated with the separation of certain employees.
* Reduced Cash Required For Operating Activities. The company streamlined
the amount of cash required to run its operations year-to-year. Cash
used for operations fell 21 percent in first quarter of fiscal 2005 to
$1.4 million, an improvement of $371,000, compared to $1.8 million of
cash expenditures in the first quarter of 2004. The company believes its
cash and cash equivalents to be more than adequate for its operating and
working capital needs for the foreseeable future.
* Gearing Up For Rapid Expansion And Continued Product Enhancements. As
stated previously, the company has built a strong infrastructure of
sales and marketing assets to gain solid footholds in key vertical
markets, including higher education; corporate markets of aerospace,
pharmaceutical, engineering; and, federal, state and local government.
Increasing multi-unit sales are contributing to the rapid spread of
Mediasite units throughout organizations and represented nearly 50
percent of the company's total first quarter revenues. Recent customer
gains include Georgia State, Florida State and Vanderbilt universities
as well as Lands End, IBM Research and the city of West Palm Beach, Fla.



"We are continually evolving the Mediasite family to keep pace with our customers' needs," said Rimas Buinevicious, chairman and CEO of Sonic Foundry. "Our ongoing success is based on studying market demand and responding quickly. It is an exciting time and we are fortunate to have so many customers who have the same strong passion as we do about bringing an entirely new communications paradigm to market."

Sonic Foundry will host a Webcast today to discuss its first quarter 2005 results at 10:00 a.m. CT/11 a.m. ET. It will use Mediasite to Webcast the presentation for both live and on-demand viewing. To access the presentation, go to www.sonicfoundry.com. An archive of the Webcast will be available for 30 days.

About Sonic Foundry(R), Inc.

Founded in 1991, Sonic Foundry (NASDAQ:SOFO) is a provider of rich media communications technology for the enterprise. The company's high-performance rich media presentation systems are trusted by Fortune 500 companies, education institutions and government agencies for a variety of critical communication needs. Sonic Foundry is based in Madison, Wis. For more information about Sonic Foundry, visit the company's Web site at www.sonicfoundry.com.

Certain statements contained in this news release regarding matters that are not historical facts may be forward-looking statements. Because such forward-looking statements include risks and uncertainties, actual results may differ materially from those expressed in or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, uncertainties pertaining to continued market acceptance for Sonic Foundry's products, its ability to succeed in capturing significant revenues from media services and/or systems, the effect of new competitors in its market, integration of acquired business and other risk factors identified from time to time in its filings with the Securities and Exchange Commission.

Sonic Foundry, Inc.
Statements of Operations
(in thousands except for per share data)
(Unaudited)
Three Months Ended
December 31,
2004 2003
Continuing Operations
Revenue:
Product sales $1,339 $603
Customer support fees 189 67
Other 63 229
Total revenue 1,591 899
Cost of revenue 536 324
Gross margin 1,055 575

Operating expenses:
Selling and marketing expenses 1,231 748
General and administrative expenses 815 681
Product development expenses 455 368
Total operating expense 2,501 1,797
Loss from operations (1,446) (1,222)

Other income, net 46 34
Loss from continuing operations (1,400) (1,188)

Gain on disposal of discontinued operations -- 120
Net loss $(1,400) $(1,068)

Net loss per common share:
-- basic and diluted $(0.05) $ (0.04)


Sonic Foundry, Inc.
Consolidated Balance Sheets
(in thousands except for share data)

December 31, September 30,
2004 2004
Assets (unaudited)
Current assets:
Cash and cash equivalents $6,365 $7,583
Accounts receivable, net of allowances
of $98 each period 1,303 1,345
Accounts receivable, other 15 18
Inventories 391 371
Prepaid expenses and other current assets 211 281
Total current assets 8,285 9,598
Property and equipment:
Leasehold improvements 185 185
Computer equipment 1,031 1,010
Furniture and fixtures 177 177
Total property and equipment 1,393 1,372
Less accumulated depreciation 702 627
Net property and equipment 691 745
Other assets:
Goodwill and other intangibles, net 7,663 7,676
Capitalized software development costs,
net of amortization of $857 and $788 543 612
Total other assets 8,206 8,288
Total assets $17,182 $ 18,631

Liabilities and stockholders' equity
Current liabilities:
Accounts payable $797 $879
Accrued liabilities 363 686
Unearned revenue 467 473
Total current liabilities 1,627 2,038

Other liabilities 26 27

Stockholders' equity:
Preferred stock, $.01 par value,
authorized 5,000,000 shares;
none issued and outstanding -- --
5% preferred stock, Series B,
voting, cumulative, convertible,
$.01 par value (liquidation
preference at par), authorized
10,000,000 shares, none issued
and outstanding -- --
Common stock, $.01 par value,
authorized 100,000,000 shares;
30,218,483 and 29,782,269 issued
and 30,148,233 and 29,712,019
outstanding at December 31, 2004
and September 30, 2004, respectively 302 298
Additional paid-in capital 169,729 169,383
Accumulated deficit (154,308) (152,908)
Receivable for common stock issued (26) (39)
Treasury stock, at cost, 70,250 shares (168) (168)
Total stockholders' equity 15,529 16,566
Total liabilities and stockholders' equity $17,182 $18,631



Source: Sonic Foundry, Inc.

CONTACT: Press, Terri Douglas of Catapult PR-IR, +1-303-581-7760,
ext. 18, cell, +1-303-808-6820, tdouglas@catapultpr-ir.com, for Sonic Foundry,
Inc; or Investors, Rob Schatz of Strategic Growth International, Inc.,
+1-212-838-1444, rob@sgi-ir.com, for Sonic Foundry, Inc.

Web site: http://www.sonicfoundry.com/


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