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Edited Transcript of SOFO earnings conference call or presentation 12-Jan-18 9:30pm GMT

Thomson Reuters StreetEvents

Q4 2017 Sonic Foundry Inc Earnings Call

MADISON Jan 16, 2018 (Thomson StreetEvents) -- Edited Transcript of Sonic Foundry Inc earnings conference call or presentation Friday, January 12, 2018 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gary R. Weis

Sonic Foundry, Inc. - CEO, CTO and Director

* Kenneth A. Minor

Sonic Foundry, Inc. - CFO and Secretary

* Tammy Jackson

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Presentation

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Tammy Jackson, [1]

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Good afternoon, and welcome to Sonic Foundry's Fourth Quarter and Fiscal 2017 Earnings Webcast. I'm Tammy Jackson, Vice President of Marketing for Sonic Foundry, and will be moderating today's webcast. We'll begin with the safe harbor statements, followed with a presentation by Gary Weis, CEO; and Ken Minor, CFO. (Operator Instructions)

In compliance with the SEC regulation regarding fair disclosure, we will be using SEC filings and public presentations, like the one you're viewing and participating in today, as the principal means of informing The Street and investors about our current and past results, financial projections or any material nonpublic information during those meetings. Sonic Foundry will continue to meet with analysts, investors, the media and others on an intra-quarter basis but will not provide updates regarding quarter-to-date results, financial projections or any material nonpublic information during those meetings. Sonic Foundry's disclosure policy defines the period beginning on the 15th day of the third month of each fiscal quarter and ending on the day we publicly release the results of that quarter as a quiet period. During such quiet periods, we will not make any comments about our financial performance nor provide forward-looking guidance, except in press release form.

Finally, this conference will contain forward-looking statements about the products and services of Sonic Foundry within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from the forward-looking guidance we provide. Any forward-looking statements should be considered in context of the risk factors disclosed in our periodic forms 10-Q, 10-K and other filings with the SEC. These filings can be accessed online at sec.gov and other websites or can be obtained from the company's Investor Relations department.

From time to time, Sonic Foundry refers to various non-GAAP financial measures, or measures not defined as generally accepted accounting principles. As an example, we refer to adjusted EBITDA in this presentation. The company believes that this information is useful to understanding its operating results without the impact of special items. Refer to our earnings releases for a description and reconciliation of adjusted EBITDA.

All of the information and disclosures we make today regarding our business, including any forward-looking guidance, are as of the date given, and we assume no obligation to update or change this information, regardless of subsequent events. An archive of this webcast will be available at sonicfoundry.com for 90 days.

And now, Gary Weis will begin the webcast.

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Gary R. Weis, Sonic Foundry, Inc. - CEO, CTO and Director [2]

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Thank you, Tammy, and good afternoon, everyone. Welcome to the call. I'm going to begin by talking about some highlights about fiscal '17, and also, since this is a unique situation in that this is probably the latest we've ever done an earnings call at the end of the year due to a -- what I will describe as a technical audit issue, which Ken will get into the details of, we, obviously, also know quite a bit about what will happen in our first fiscal quarter for 2018 as well, so I will talk a little bit about that as well.

First, let's talk about the point on the slide. The gross margins over 2016 have been very consistent, in spite of the fact that we have seen demand for our recorder appliances shift from higher-function, higher-cost units to lower-cost, lower-function units. I'll talk a little bit at the end here of this slide to talk about what changed in big numbers between 2017 and 2016, but one of the major impacts on shortfall in revenue and billings was the fact that the recorder mix changed between those 2 years. One of the things that we learned in 2017 is that our customers, even though they're planning to expand the implementation of Mediasite, want to obtain new appliances or software solutions that are rightsized for their physical and teaching environment. And since we had talked to a number of our customers about the evolution of Catch, which is our software capture solution; and something we're calling the RL Mini, which is a prosumer-based recording appliance, a number of those customers decided to defer their upgrades or expansions to take advantage of those solutions. That, obviously, resulted in a lower number of recorders being sold in the fourth quarter.

Recurring revenue is a bright spot. We continue to see an increase in the percentage of our total revenue that is recurring revenue, and we also see very high and consistent renewal rates for assurance and refreshes for our recorder technology. During 2017, we did focus on improving our efficiency, and that resulted in some significant reductions in SG&A year-over-year as well as some operating expense improvements due to those efficiencies.

We have been paying down debt during the year. And in fact, during 2018, fiscal 2018, we will basically pay off our SVB term loan and our Partners for Growth loan. And the only debt we'll have going forward after May of 2018 is on our revolver for receivables.

In China, just like in our business here in the United States, our colleagues in China are understanding that everything takes a bit longer than you might project. But the good news is that in spite of that, we have had some significant wins with some very prestigious and significant universities in China that we've jointly delivered with our distribution partner, [Pushi Tech], in China.

We're now going to talk a little bit about the first quarter of fiscal '18. Billings for fiscal '18 are looking like 4% greater than the prior year, primarily due to increased demand in North America and higher education, Japan and EMEA. We are beginning to see some very significant impacts caused by our RL220 unit, which is our professional-grade, rack-mounted recording appliance, and with the RL Mini. We've shipped 261 of those combined units in the first quarter versus 103 in the prior quarter, which, since we didn't have the Mini, were all either 120s or 220s.

Our revenue for 2018 is actually expected to be very similar to 2017. And because of the changes in revenue recognition, meaning we had a significant revenue recognition for eMAM in the first quarter of the prior year, this year we will have increases in billings and recognition of deferred revenue for events. So those 2 about balance out, which is why in spite of billings being up 4%, revenue is essentially the same as it was in Q1 of 2017.

Finally, we implemented a number of cost-reduction actions and efficiency actions in 2017, which are now fully in effect. And that should lead to reduction in operating expense, and that in turn, will fall to the bottom line and provide a substantial reduction in the prior year's loss.

So those are the highlights. Ken will now go through many of the details, and I'll come back and talk a little bit about the other aspects of the business. Ken?

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Kenneth A. Minor, Sonic Foundry, Inc. - CFO and Secretary [3]

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Okay. Thank you, Gary. As Gary said, I'll run through a few more of the details about the billings and operating results. The Americas' results included growth in support billings, reflecting some continued brand loyalty, as Gary said, from our key accounts, high retention rates. Our renewal rates of the customer care as well as the good results from our annual licensing and cloud helped drive that recurring revenue to 65%, while we were down at 60% a year ago.

While our active customers continue to refresh older recorders, they did not expand their footprint in more classrooms to the extent that we expect in the quarter. As such, the number of recorders that were sold during the quarter were less, as Gary said.

In addition, we saw a shift in the mix in the percentage of lower-cost recorders than before. Selling lower-cost recorders does make it more difficult to maintain the same revenue level as the -- as we had with the larger or the more full-functional recorders, but the gross margins are very similar and they do provide for a lot of upsell opportunities. We don't expect to see much further shift in mix as we go forward from the higher-function recorders to the low cost, but our first quarter results, as Gary pointed out, does show significant increase in volume with our lower-cost recorders. They're about 2.5x what they were a year ago.

Our events and hostings' billings were consistent with last year's Q4 but showed a decrease over last full year due to the lower events billings. Our event services were impacted by a limited number of large customers that made changes to our events, and in some cases they stopped doing that, which -- so the majority of our events did renew just fine. It's just that we had 2 or 3 large customers that had an impact on us.

Our results in Japan were improved over last year, in large part due to a refresh opportunity from a very large university customer that they have in Japan. And while our partner in China continues to show that success, as Gary mentioned, in terms of delivering the Mediasite solution to a number of new customers in China, they did not purchase additional product during the fourth quarter.

Our other international performed well over the prior year, primarily due to success in some large higher education accounts, and in particular, we had one very large win in the Asia-Pac region.

In terms of revenue, revenue was certainly impacted by the same sorts of things that obviously impacted billings from the previous slide. The billings also included a greater amount of billings that were deferred from revenue recognition standpoint. That's primarily due to some large events that were completed in early Q1 2018. We had approximately 900,000 of events that we billed at the end of September that were 4 events that occurred in Q1. Therefore, as I said, deferred from revenue recognition standpoint at year-end. Now the reverse happened at the end of Q1. I mean -- so we saw the recognition of all those events and the amount of deferred at the end of December was far less than the amount that was deferred at the end of September. So we're going to see a flip of that.

Our gross margins were consistent from year-to-year. That's despite that mix to lower-cost recorders since we were able to maintain some pretty similar margins. Likewise, a greater percentage of recurring revenue from the software support and cloud that we talked about maintains gross margins at a pretty high rate. As we described in our release as well, the recent decline in our market cap caused us to reevaluate whether the fair value of goodwill supports the carrying value. Now while future success of the business often has very little to do with the stock price, particularly a company like ours that has low stock volume, there is a requirement that the difference between the two be reconciled. So in addition, our fiscal 2017 results for Japan were well below what we had expected from them, and that's primarily due to some delays in realizing meaningful impact from opportunities from some strategic partners that we've been working on. And we still believe that those partnerships are going to be valuable in the future and they are showing progress. But since we're building off of a lower base now in 2017, we're reflecting lower cash flows in 2018 and beyond than we originally did back a year ago. So after reviewing a number of considerations such as these with our appraiser that we hired, we ultimately determined that we needed to put in place a $600,000 noncash charge as an impairment of goodwill. So that brings our total goodwill down to a balance of $10.5 million. And it better matches the other valuation methodologies that we use in determining the value, the fair value of goodwill. Better matches it with the stock price.

Our current expenses, other than the goodwill charge, decreased nearly $700,000 for the year-over-year. That's due largely due to the cost-reduction efforts that we talked about that we initiated in Q3. That was partially offset by an increase in our reserves for bad debt, which is due to the age of certain international receivables, including the receivable that we've got from our partner in Japan.

Our bottom line results were nearly consistent with the prior year with a decrease of $138,000. Again, that's after adjusting for the $600,000 impairment, noncash charge for goodwill.

In terms of our ASP, as I mentioned, it's down year-over-year for recorders, but instead, it reflects a greater amount of recorders, as I said, represented by those lower-cost, lower-function recorders. So the ASP of same recorders were pretty consistent from year-to-year. As I said, it's also largely from the active accounts we have with our higher education customers, and it was up in total for the year as a result of a large transaction we completed in Q1 with a customer in the Middle East. Our Q1 2018 results, as I mentioned, though show a significant increase in recorder billings. Our SG&A costs were down, as we said, due primarily to lower wages, incentives and benefits.

And finally, on the balance sheet, our receivables dropped significantly over last year, and that's due primarily to collection of 2 large customer accounts that had deferred payment terms. We also saw a significant reduction in inventory, and that's primarily due to the fact that we were able to negotiate different timing required to place POs for the purchase of our recorders. In addition, we made a change in the number of SKUs we've got. We've reduced it slightly that allowed us to maintain lesser quantities from a lesser number of variations in recorders. The liabilities reflect a decrease of $1.7 million, as we said in our long-term debt, from year-over-year. We have a greater amount of deferred revenue, categorized as long-term, and that compares to last year, which of course, is a noncash-related liability. That's the primary driver for the increase in long-term liabilities.

We had $1.6 million outstanding on our line of credit as of September 30, and the total availability based on our accounts receivable that we borrow against was $3.9 million.

Finally, we've announced this in a couple of different raises, we did raise $1.25 million of preferred stock during the period, the close of the final tranche of the last piece of that in Q1, which was $500,000. So that -- we've completed that round that we have committed at this point.

So at this point, that's the end of the financial results that I'm going to talk about. And I'll turn it back over to Gary who'll run us through a few of the business trends.

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Gary R. Weis, Sonic Foundry, Inc. - CEO, CTO and Director [4]

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Thanks, Ken. I think before I get into some of the customer wins and product stuff, I want to just kind of recap the year for 2017. I think the recorder dynamics that we've described are behind us in 2017. The mix that we now have forecast for 2018 will be predominated by the 220s and the RL Minis. We will still be very successfully selling higher-function recorders because a number of our customers really require portable units like our ML series or rack-mounted units with 4 inputs. So I want to make sure that everyone understands that those products are still very popular. It's just the mix that has changed significantly. But that mix rebalanced in 2017, and our plan for 2018 is very much consistent. In fact, for the first quarter, our billings for hardware recorders went up by 50%, just to give you some indication of the fact that recorders are still a very successful part of our product mix.

Let me now talk a little bit about some of our strategic wins. Florida International is a good example where we've had major expansion in several of the colleges there, and this was, in fact, a competitive displacement. We really have ramped up viewing very quickly in the first 5 months. You can see the quote from one of the assistant directors at the university below on the slide. They're using Mediasite in a full range of functions, not just classroom capture through recording appliances but also personal capture, flipped learning, et cetera. So a good example of a new major strategic customer coming on board in 2017.

Texas A&M College of Engineering, while initially it is a single school in Texas A&M, we already had deployed the major win as a single school to College of Engineering, but we had already deployed Mediasite in other colleges at the university. We are anticipating going into an enterprise agreement, a campus-wide agreement for Texas A&M, which will occur in the second quarter, we believe. Florida Atlantic University, similar story. Campus-wide implementation using a variety of our product capabilities, very heavy into video creation. They're also using Join for recording videoconference classes between campus. Again, the emphasis of all of these is that each of these customers is using a wide range of features of their product, not just lecture capture in rooms. These are some more examples, a bit smaller than the first two. The first is exclusively joined where we're seeing a lot of usage by the University of British Columbia to capture remote teaching through Join and then publishing that into Mediasite for viewing across the campuses. Western New Mexico University is a cloud deployment of Mediasite Join. They integrate with Zoom, which is another web conferencing solution in use at the university. Join is proving to be a very flexible option for customers like these that allow them to extend the capture and integration of video done through videoconferencing into the mainline video capabilities of Mediasite.

Ken talked a little bit about Teikyo University. This is a major refresh. Teikyo has been a customer of ours for a number of years. They had deployed this particular campus in -- I believe, 4 years ago. The President of Teikyo has been very eager about the improvement in pass rates in the university due to using video solutions at Teikyo. There are other campuses at Teikyo, which we are working with the university to implement later in 2018 or 2019. Kansas State University is an example where they had a homegrown capture solution campus-wide, which they basically imported the content out of that solution into Mediasite, and they now have selected us because of our full automation and end-to-end solution.

And finally, in Arizona State, an example where the penetration of the law school was based on a new state-of-the-art facility where our technology was specked into that facility to address the lecture capture needs.

In our last call, we talked a fair amount about healthcare in the Netherlands through our partner there. And that application for Noordhoff Health is really an integration of video into a solution that allows us to help them certify hospitals, continuing the certification of hospitals or certifying new hospitals. These examples are a little bit different. These are situations where they, more or less, use traditional Mediasite. GE Healthcare uses it for training radiologists, and they do it as an extension of the sales and support of, in this case, an ultrasound system. St. Vincent's HealthCare is a institution that uses our technology to capture grand rounds and to serve as an extension of teaching at the hospital, and then similarly with Gundersen Health Systems. So we are seeing an increase of interest in Mediasite as a video technology for healthcare providers, and they're using the technology to essentially improve the training and skills level of healthcare professionals.

I'll talk a little bit about China. There are several opportunities that have now closed and been deployed in China. The first is a partner of Liverpool University, and the second is a prestigious Chinese business school, CEIBS. Both of these opportunities were sold by the China distributor. And I think they learned during the sales process that it takes time and it takes a lot of support from us to ensure that the end customer values Mediasite technology in the total scope of value that it can provide for the universities.

On the Liverpool opportunity, they're going to be an early adopter of student assignment submission, which is a new feature that we're adding to Mediasite in our 7.2 release. This is proving important for a number of universities where they're actually extending Mediasite to the student from the standpoint of enabling the student to actually compose assignments, submit those assignments, and then the educational staff use those assignments through their Blackboard or Moodle or whatever learning management system.

We are also, in China, looking to extend our reach in China to other potential partners for distribution. It's too early to talk about the details of that, but we have been getting traction in terms of selling our technology to other potential distributors in China.

Let's now talk a little bit about product. We have been talking about Catch for quite a while as we've introduced it in beta programs during 2017. I think it's important for me to set the stage for where Catch fits. A lot of schools have what's known as podium PCs in the classroom, and these podium PCs are viewed as a low-cost way to implement lecture capture in those classrooms to avoid the need to install a separate recording appliance. Now that solution has attributes which are different than the attributes of a dedicated recorder solution, but our goal is to give the customer the options they need to cover all of their possible teaching spaces. And we had a gap in 2016 in our product line because we really relied on our recording appliance in every classroom to do that capture. We now have Catch. It's out in the public. It's in general availability. We are seeing uptake of Catch. But what we're also seeing is it's helping to drive our recorder sales because customers begin to understand that while it is a very good, high-quality software solution, it is subject to all the foibles of a software solution and all of the support requirements for the podium PC in the classroom. The other attributes that we're seeing the school is interested in it, is to support an educator in bringing their own device to the classroom. Now what that means is the educator may have prestored their lectures and content on their own laptop or portable tablets or whatever devices. They want to come into the classroom, connect those devices to something in the classroom and be able to then capture the content that is presented from those portable devices that the educator has brought with them. A software solution makes that very difficult to accomplish. Our low-cost, entry-level hardware solution, the RL Mini, really facilitates that in a very nice way. And again, customers have choice. They can choose. If they have a bring-your-own device strategy, then they're going to buy an RL Mini. If they have a podium PC-based strategy, they're going to buy Catch. So we're very pleased with the early adaptation of Catch, and we're finding very positive feedback from the customer in terms of the completeness of the solutions that we're offering.

Now this is a slide that shows what the RL Mini is. I refer to it as a prosumer device, meaning it's not a rack-mounted device, it is a tabletop or podium kind of device. It has USB input. It can capture dual full-motion content and video. It's fully supported by Mediasite. It actually runs exactly the same software, the same application software that is running on our rack-mounted units. It is a Intel-based device, and it is running Windows 7 or Windows 10. I can't emphasize enough how important it is to offer this in conjunction with Catch for customers that are looking for a lower price point entry for capture.

I mentioned a little earlier about the fact that students are now also beginning to use My Mediasite as a way to compose assignments. We've invested in a pretty rich suite of user interfaces to support My Mediasite across portable devices, phones, tablets, laptops, client desktop computers, et cetera, and we're finding more and more interest for student submission and student feedback from the instructor. I'll give you one quick example. The University of Leeds has implemented a way for instructors to give video feedback to the student assignment. And so if you're in languages or something like that, the student's voice in the language that's being learned in a recorded video/audio feedback is an extremely valuable element to the teaching paradigm at a university.

We also have had a lot of feedback from our customers that realize the value of lecture capture in the terms of the dissemination of information, but they really want to do more than that. They want to implement quizzing and testing and so forth. With Mediasite 7.2, we have taken the first step at implementing a pretty rich quizzing interface that allows a educator to basically use standards in the learning management system to compose quizzes or tests and then propagate those into Mediasite. We also can export the results of the students' answers to those quizzes and import that into the learning management system. So as time goes on, we think that the educators will use the information that's collected to improve how they teach and how they structure their lectures.

Engagement is similar in that once you have video material out in a showcase, you want to facilitate the viewers of that video to have both structured and free-form interactions around the video. Some of this is called annotation, some of it is called exchange of ideas via messaging. There's a number of ways to accomplish it, but we have begun to implement a pretty rich capability around showcase to feature a variety of annotational methods that allow people to exchange information around stored video content. All of these last several features that I've described are an integral part of Mediasite 7.2, which is now in general availability and will be enhanced for the next 18 months or so.

We continue to get a lot of requirements for doing transliteration of voice to text to meet the closed-caption requirements of teaching institutions. We looked at ways to integrate that kind of technology into Mediasite and basically came to the conclusion that none of the technologies were at a high enough accuracy rate or standardization to make that a practical course of action. So instead, what we've done is we've shifted to providing an interface to a number of providers who offer that capability as a service and do it in an automated way. So a customer can set up, in an automated fashion, the export of audio files from captured lectures to, for example, IBM Watson, and get back the caption-generated file and include that in Mediasite so that when a student or business professional views the video, they will see the closed-caption text. We're supporting others beside IBM Watson. Most of the existing closed-caption providers that we use that are human-based are implementing some form of this technology. So we've determined that's the most effective way to implement this kind of technology for our customers.

So that concludes the, I guess, I would call earnings call and a half because of the inclusion of some of the information about the first quarter. Ken and I would now be happy to take any questions relayed through Tammy.

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Questions and Answers

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Tammy Jackson, [1]

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Thank you. There are a couple of questions coming in. What are your plans to generate enough revenue for the company to become profitable?

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Gary R. Weis, Sonic Foundry, Inc. - CEO, CTO and Director [2]

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Well, that has been, if you followed these calls, something that we have striven to do for each year. And each year, at the start of the year, we thought we were pretty close and then, as they say, something happened along the way. We did a lot of work through the experiences that we had in 2017 to do some efficiency and cost reductions, which we think will certainly help in the direction of achieving that. We think we also now have a revenue platform, both in recurring revenue at 65% and through the adjustment of the recorder mix to allow us to achieve significant progress in moving to our profitability this year. We're not going to outlook what we think the full year will bring, but we clearly have a goal to come as close to that as possible in the year. Ken, you'd elaborate or...

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Kenneth A. Minor, Sonic Foundry, Inc. - CFO and Secretary [3]

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That's right. So a couple of things we talked about that I think we pointed out in the presentation were we've -- we're striving to hit the lower end of the market as well as the higher end of the market. We've always been good at the higher end of the market. I mean, so we've come out just this last summer with the Mini recorder, and so that's only been on a short time. The 220 recorder's been out a little bit longer, but we're seeing significant growth year-over-year already. So I think the low-end recorder will get us into rooms that we haven't been able to get to before because the economics just don't support a recorder that was a fuller-function recorder that we had before. And likewise, the software-only recorder gets us into more rooms, yes. So I think that, that does help drive the top line a little bit further. We certainly have some other strategic plans that we're working on towards improving our sell-through and that's a big effort of ours in 2018 there. We also think we'll generate some positive progress.

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Gary R. Weis, Sonic Foundry, Inc. - CEO, CTO and Director [4]

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One of the things we've learned in 2017, I think, is that our expectations for the China market were certainly greater than what we've realized. Our partner in China has been developing several applications that integrate our video capabilities into those applications. He's learned that there's a long lead time to sell those. But in parallel to that, he's also deployed resources to actually more traditionally sell Mediasite products, like the 2 customer examples I gave you. Again, at this point, it's too early to predict that, that's going to take off. It's certainly not like a hockey stick, but to begin to generate more significant revenue for us. But that certainly is still the plan. Similarly in Japan, the partners that we've recruited, Sony, NTT, et cetera, are gaining more and more traction. And we think that the -- again, the advent of the Mini will help them be more successful and generate incremental revenue. And finally, I think that we're looking at our resellers who generate a fair number of transactions on an annual basis that are relatively small per transaction. We're looking at automating the boarding of those into our hosting environment and having a program to help those customers become more predictive and grow the use of Mediasite more rapidly. So we have a set of things that we're doing that we've learned from 2017 that we think will help get us there faster.

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Kenneth A. Minor, Sonic Foundry, Inc. - CFO and Secretary [5]

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Right. And that's going to create an easier onboarding, we think, for those new customers.

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Tammy Jackson, [6]

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Since this is becoming a video society, can Sonic Foundry team up with another company to develop places the average person? Can you put -- publish lectures or demonstration videos? The model would be a subscription model.

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Gary R. Weis, Sonic Foundry, Inc. - CEO, CTO and Director [7]

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We have talked to several entrepreneurial folks who've talked about having ideas like that. Our technology supports it. I mean, it's not a terribly challenging technology exercise. But there is a fair amount of investment in market development to achieve that. And whoever asked the question, ask it in the right context of partnering with someone because we certainly, as Sonic Foundry, would not try to approach that on our own. You need to have skills and capabilities that we don't have as a company to do something like that, especially if you're talking about more individual or consumer-focused. So we're certainly open to that. But I think it's safe to say none of the conversations we've had has led to anything material.

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Tammy Jackson, [8]

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Can you discuss what the market seems to be missing about the company and its position in the market? The stock is down and trading is well less than 1x revenues and below 1x recurring revenue as well.

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Gary R. Weis, Sonic Foundry, Inc. - CEO, CTO and Director [9]

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Well, I think I would be remiss if I didn't acknowledge that one of the challenges has been that we, the management team of the company, haven't lived up to the expectations we've set in terms of fundamentals for the business. We've, I think, learned from each one of the things that has transpired to cause that to be the case. We work very hard to improve the result. Part of it is due to the market. We can change a lot in terms of our own efficiency or our products or our sales force. But in the final analysis, I think Ken and I would both say that the size of this market is certainly less than what we would've thought it would be 3 years ago.

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Kenneth A. Minor, Sonic Foundry, Inc. - CFO and Secretary [10]

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Right.

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Gary R. Weis, Sonic Foundry, Inc. - CEO, CTO and Director [11]

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And that's the fundamental thing that's causing us not to be able to see the top line growth. I'm pretty proud of the team we've got in terms of the work that's been done to create solutions and to service customers and maintain customer loyalty. And from a cost-control perspective, I think we've done a very good job. But if the top line -- if the addressable market doesn't grow as fast as we would like it to, then we, Sonic Foundry, aren't going to change that on our own.

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Tammy Jackson, [12]

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You mentioned 2018 -- the first quarter of 2018 is off to a good start. To what do you attribute that growth?

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Gary R. Weis, Sonic Foundry, Inc. - CEO, CTO and Director [13]

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Well, I would first say the recorder situation. As I said, our recorder sales in the first quarter, in dollars, is 50% higher than it was in the same quarter last year. And I think what we have seen, and just to be very candid about it, when we did our plan for 2017, we made assumptions, implicit assumptions about what we thought customer behavior would be and what the substitution potentials were for other technologies like the Mini or Catch. And we underestimated the degree of customer desire for that lower-function, lower-cost footprint. And at the same time, the customer's willingness to wait to get the solution they wanted until we could offer them that. Now the good news is, they waited. They waited for us to provide the solution. But they waited and that was revenue we didn't get in 2017. That waiting is now over. And the first quarter, I think, is showing that to us.

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Tammy Jackson, [14]

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There are no more questions.

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Gary R. Weis, Sonic Foundry, Inc. - CEO, CTO and Director [15]

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Very good. Well, thank you very much for attending the call. I think the first quarter call in what, about 45 -- 30 days.

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Kenneth A. Minor, Sonic Foundry, Inc. - CFO and Secretary [16]

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It's about 30 days.

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Gary R. Weis, Sonic Foundry, Inc. - CEO, CTO and Director [17]

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It's going to be somewhat not exciting because we already told you a lot about where we are. But we would look forward to talking to you in about 30 days when we do the first quarter earnings call. Thank you.

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Kenneth A. Minor, Sonic Foundry, Inc. - CFO and Secretary [18]

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Thank you.