SonoSite Announces Third Quarter 2009 Results

October 27, 2009 4:00 PM EDT

Conference Call Webcast Live Today at 1:30 pm Pacific/4:30 pm Eastern

BOTHELL, Wash.--(BUSINESS WIRE)-- SonoSite, Inc. (Nasdaq: SONO), the world leader and specialist in hand-carried ultrasound for the point-of-care, today reported financial results for the third quarter and nine months ended September 30, 2009.

REVENUE

Revenue in the third quarter of 2009 was $53.6 million, a decrease of 13% compared to the third quarter of 2008. For the nine months of 2009, revenue was $157.7 million, a decrease of 9% compared to the nine months of 2008.

Overall revenue included $3.0 million for the quarter and nine months just ended from the recently acquired CardioDynamics International Corporation (CDIC).

Excluding CDIC, revenue in the third quarter was $50.6 million, a decrease of 18% compared to the third quarter of 2008, and $154.7 million for the nine months just ended.

Foreign exchange had zero effect on third quarter revenue, but had a negative impact of $6.7 million or 4% for the nine months just ended.

OPERATING INCOME AND CASH FLOW

Overall, "reported" third quarter operating income was $2.3 million, including charges from CDIC of $3.1 million related to operating results as well as acquisition and integration.

Operating income in the third quarter excluding CDIC was $5.4 million, a 10.7% operating margin versus a $3.0 million or 5.6% operating margin in the second quarter 2009.

Cash Flow

Operating cash flow was $1.6 million for the quarter and $8.9 million for the nine months of 2009, as compared to $13.0 million and $18.0 million for the comparable periods of 2008. Operating cash flow reflects the decline in operating income and the $3.1 million impact of the CDIC acquisition.

Net income

For the third quarter of 2009, the Company recorded a net loss of $0.2 million or $0.01 per share, compared to a net income of $3.7 million or $0.21 per share in 2008. For the nine months of 2009, net income was $1.0 million or $0.06 per share compared to $5.3 million or $0.30 per share, all of which include $3.1 million in charges related to the CDIC acquisition.

COMMENTARY

"While revenue remained sluggish, gross margins and expense management improved, resulting in a better than forecasted operating margins of 10.7% in our core businesses, excluding CDIC," said Kevin M. Goodwin, SonoSite President and CEO. "The revenue environment remains tight, US revenue levels continued stabilizing and we experienced a few order delays in our international business. Importantly, pricing and expense management have continued to improve, resulting in steadily increasing operating margin performance."

"We also recently concluded an agreement with General Electric to settle our patent disputes," Mr. Goodwin stated. "As a part of the settlement, both companies agreed to invest in an important new education and clinical research foundation, which the companies will co-fund, and which will contribute to the long-term market adoption of best practices in point-of-care ultrasound."

"Our 2009 outlook remains unchanged," Mr. Goodwin said. "Going forward, we intend to continuously improve our operating margins and cash flow while preparing and positioning ourselves for the resumption of revenue growth. We have numerous growth initiatives in place, alongside a strengthening handle on pricing and expense control. We are targeting operating margins of 11 - 13% for 2010. These targets assume zero to low revenue growth rates. If we realize greater growth rates, our operating margins will be structured to improve further. These projections exclude $3.3 million of expected amortization for intangibles related to the CDIC acquisition."

As of September 30, 2009, the company held $248 million in cash and investments and had outstanding senior convertible notes of $120 million. The Company used $16.2 million for the CDIC acquisition including re-payment of their debt.

2009 FINANCIAL OUTLOOK

The Company has updated its outlook to include the impact of the CDIC acquisition:

    --  revenues in the range of $225 - $230 million,
    --  gross margins are expected to be level with 2008, and
    --  operating income in the range of $10 - $11 million inclusive of negative
        $8 million in charges from the CDIC acquisition.

NON-GAAP MEASURES

This release includes a discussion of management measures that are non-GAAP. We believe it is useful for investors to understand the comparison of operating results in 2009 versus 2008 by eliminating the impact of the CDIC related charges using non-GAAP measures.

Conference Call Information

SonoSite will hold a conference call on October 27th at 1:30 pm PT/4:30 pm ET. The call will be broadcast live and can be accessed via http://www.sonosite.com/company/investors. A replay of the audio webcast will be available beginning October 27, 2009, 5:30 pm PT and will be available until November 10, 2009, 9:59 pm PT by dialing 719-457-0820 or toll-free 888-203-1112. The confirmation code 1942151 is required to access the replay. The call will also be archived on SonoSite's website.

About SonoSite

SonoSite, Inc. (www.sonosite.com) is the innovator and world leader in hand-carried ultrasound. Headquartered near Seattle, the company is represented by ten subsidiaries and a global distribution network in over 100 countries. SonoSite's small, lightweight systems are expanding the use of ultrasound across the clinical spectrum by cost-effectively bringing high performance ultrasound to the point of patient care.

Forward-looking Information and the Private Litigation Reform Act of 1995

Certain statements in this press release relating to our future financial position and operating results are "forward-looking statements" for the purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on the opinions and estimates of our management at the time the statements are made and are subject to risks and uncertainties that could cause actual results to differ materially from those expected or implied by the forward-looking statements. These statements are not guaranties of future performance, are based on potentially inaccurate assumptions and are subject to known and unknown risks and uncertainties, including, without limitation, the risk that the acquisition of CardioDynamics will not yield the expected potential benefits, our ability to manufacture, market and sell our newest products, spending patterns in the hospital market, healthcare reform and the other factors contained in Item 1A. "Risk Factors" section of our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission. We caution readers not to place undue reliance upon these forward-looking statements that speak only as to the date of this release. We undertake no obligation to publicly revise any forward-looking statements to reflect new information, events or circumstances after the date of this release or to reflect the occurrence of unanticipated events.

SonoSite, Inc.
Selected Financial Information

Condensed Consolidated
Statements of Income

(in thousands except per
share data) (unaudited)

                          Three Months Ended          Nine Months Ended

                          September 30,               September 30,

                                        2008                        2008
                          2009                        2009
                                        As Adjusted                 As Adjusted

Revenue                   $   53,571    $   61,633    $  157,661    $  173,362

Cost of revenue               16,021        18,562       48,033        50,962

Gross margin                  37,550        43,071       109,628       122,400

Gross margin percentage       70.1   %      69.9   %     69.5    %     70.6    %

Operating expenses:

Research and development      6,497         7,440        21,569        20,574

Sales, general and            28,874        28,254       81,682        86,712
administrative

Licensing income and
litigation settlement         -             (2,643 )     (924    )     (2,643  )
with Zonare

Acquisition costs, net of     (110   )      -            469           -
bargain purchase (gain)

Total operating expenses      35,261        33,051       102,796       104,643

Operating income            * 2,289         10,020       6,832         17,757

Other loss, net               (3,013 )      (3,655 )     (5,486  )     (8,591  )

(Loss) income before          (724   )      6,365        1,346         9,166
income taxes

Income tax (benefit)          (484   )      2,715        298           3,914
provision

Net (loss) income         $   (240   )  $   3,650     $  1,048      $  5,252

Net (loss) income per
share:

Basic                     $   (0.01  )  $   0.22      $  0.06       $  0.31

Diluted                   $   (0.01  )  $   0.21      $  0.06       $  0.30

Weighted average common
and potential

common shares
outstanding:

Basic                         17,308        16,927       17,203        16,858

Diluted                       17,308        17,592       17,650        17,488

Reconciliation of
Non-GAAP operating
income:

Operating income          $   2,289       $ 10,020    $  6,832      $  17,757

Adjustments to operating
income for:

Acquisition costs, net of     (110   )      -            469           -
bargain purchase (gain)

CardioDynamics operations     3,187         -            3,187         -
and integration costs

Non-GAAP operating income $   5,366     $   10,020    $  10,488     $  17,757

*includes acquisition and integration related charges of $4.2 million in third
quarter and $4.7 million for the nine months ended of 2009 reduced by a
bargain purchase gain of $1.1 million in both periods of 2009.

Condensed Consolidated Balance Sheets

(in thousands) (unaudited)

                                                             December 31,
                                              September 30,  2008
                                              2009
                                                             As Adjusted

Cash and cash equivalents                     $  211,035     $  209,258

Short-term investment securities                 36,864         69,882

Accounts receivable, net                         55,414         66,094

Inventories                                      35,309         29,115

Deferred income taxes, current                   14,830         13,372

Prepaid expenses and other current assets        6,695          6,623

Total current assets                             360,147        394,344

Property and equipment, net                      9,393          8,955

Investment securities                            -              578

Deferred income taxes                            180            793

Intangible assets, net                           28,841         16,829

Other assets                                     3,595          5,383

Total assets                                  $  402,156     $  426,882

Accounts payable                              $  8,451       $  6,189

Accrued expenses                                 21,616         31,921

Deferred revenue                                 2,485          2,755

Total current liabilities                        32,552         40,865

Long-term debt, net                              95,462         111,336

Deferred income taxes, net                       6,776          9,871

Other non-current liabilities                    14,423         13,750

Total liabilities                                149,213        175,822

Shareholders' equity:

Common stock and additional paid-in capital      289,834        285,928

Accumulated deficit                              (34,988 )      (36,036 )

Accumulated other comprehensive (loss) income    (1,903  )      1,168

Total shareholders' equity                       252,943        251,060

Total liabilities and shareholders' equity    $  402,156     $  426,882

Condensed Consolidated Statements of Cash Flow

(in thousands) (unaudited)

                                                    Nine Months Ended

                                                    September 30,

                                                                  2008
                                                    2009
                                                                  As Adjusted

Operating activities:

Net income                                          $  1,048      $  5,252

Adjustments to reconcile net income to net cash
provided by operating activities:

Depreciation and amortization                          3,647         3,086

Stock-based compensation                               5,201         5,209

Amortization of debt discount, debt issuance costs     3,792         6,581

Gain on bargain purchase acquisition                   (1,078  )     -

Gain on convertible debt repurchase                    (1,339  )     -

Non-cash gain on litigation settlement with Zonare     -             (643    )

Changes in working capital and other adjustments       (2,360  )     (1,487  )

Net cash provided by operating activities              8,911         17,998

Investing activities:

Investment securities, net                             33,939        62,368

Acquisition of CardioDynamics, net of cash acquired    (8,185  )     -

Purchases of property and equipment                    (2,290  )     (2,198  )

Earn-out consideration associated with SonoMetric      (387    )     (921    )
acquisition

Net cash provided by investing activities              23,077        59,249

Financing activities:

Excess tax benefit from exercise of stock based        -             961
compensation

Repurchase of convertible debt and related hedge       (20,416 )     -
transactions

Repayment of convertible debt                          (5,250  )     -

Shares retired for taxes                               (1,285  )     -

Proceeds from exercise of stock-based awards           1,419         3,526

Net cash (used in) provided by financing activities    (25,532 )     4,487

Effect of exchange rate changes on cash and cash       (4,679  )     1,262
equivalents

Net change in cash and cash equivalents                1,777         82,996

Cash and cash equivalents at beginning of period       209,258       188,701

Cash and cash equivalents at end of period          $  211,035    $  271,697

    Source: SonoSite, Inc.

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