Somanetics Reports Record Net Revenues and Income Before Income Taxes for the Second Quarter of 2008

June 18, 2008 7:30 AM EDT

TROY, Mich., June 18 /PRNewswire-FirstCall/ -- Somanetics Corporation (Nasdaq: SMTS) today reported record net revenues of $12.7 million for the second quarter ended May 31, 2008, a 40 percent increase from $9.1 million in the same period of 2007. For the six months ended May 31, 2008, net revenues increased 25 percent to $21.4 million from $17.1 million in the same period last year.

U.S. net revenues increased 32 percent to $10.2 million from $7.7 million in the second quarter of fiscal 2007. International net revenues increased 83 percent to $2.5 million from $1.4 million. For the six-month period, U.S. net revenues increased 23 percent to $17.7 million and international revenues increased 37 percent to $3.8 million.

Second quarter income before income taxes increased 31 percent to $4.8 million compared to $3.6 million for the second quarter of 2007. Net income was $3.1 million, or $0.21 per diluted share, compared with net income of $2.4 million, or $0.17 per diluted share, in the second quarter of 2007.

For the six months ended May 31, 2008, income before income taxes increased six percent to $6.5 million from $6.2 million in the comparable period of fiscal 2007. Net income was $4.1 million, or $0.28 per diluted share, for the first half of 2008 and the first half of 2007.

Gross margin was 87 percent in the second quarter and first six months of fiscal 2008, compared with 89 percent and 88 percent for the respective periods of 2007. Cash, marketable securities and long-term investments at May 31, 2008 totaled $73.0 million, with no borrowings.

In April, Somanetics initiated a $15 million stock repurchase program and expanded the program in May to a total of up to $30 million. To date Somanetics has purchased 1,209,029 shares at an average purchase price of $15.94 per share for approximately $19.3 million, including commissions.

"We are pleased with our second quarter performance, which included a 76 percent increase in INVOS System monitor revenue and a 28 percent increase in sensor revenue over the second quarter of last year," said Bruce Barrett, Somanetics' president and chief executive officer. "The launch of the OxyAlert(TM) NIRSensor disposable sensor for infants and neonates is progressing ahead of schedule based on the number of hospitals using it in the pediatric and neonatal ICUs, and customer feedback is positive."

Pediatric and Neonatal ICU Market Update

Somanetics continued its launch of the OxyAlert NIRSensor for infants and neonates during the second quarter and to date 33 U.S. hospitals are using the sensors in pediatric and neonatal ICUs. Also during the quarter, approximately 200 pediatric and neonatal physicians attended a Master Class in Paris to learn about the applications of the INVOS System.

During the second quarter Somanetics received 510(k) clearance from the U.S. Food and Drug Administration to expand the indication for use for the INVOS Cerebral/Somatic Oximeter to include monitoring any tissues beneath the sensor, not limited to brain and skeletal muscle tissue. The FDA 510(k) clearance clarifies that the technology is for use on any individual, adults, children, infants and neonates, and incorporates changes made to the newest INVOS System Model 5100C monitor. The 510(k) includes data from Somanetics' neonatal piglet trials that show that placing the sensors over the abdomen and flank provides important information from the bowels and kidney, respectively.

"We believe these applications and expanded claims will facilitate adoption of the INVOS System in the neonatal and pediatric markets," Barrett said.

Business Outlook

Somanetics reiterated its previously announced guidance for fiscal 2008:

-- Net revenues in the range of $46.2 million to $50.0 million, or 20 to 30 percent growth over 2007 revenues.

-- Operating margin in the range of 25 to 27 percent of sales and gross margin in the range of 87 to 88 percent.

-- Income before income taxes in the range of $15.3 million to $17.5 million.

Somanetics' forecasts are based on market conditions and current estimates, which reflect management's plan to increase investments in clinical research, sales education and research and development projects to support the expansion of its efforts with neonates, infants and children in the pediatric and neonatal ICU markets. Somanetics undertakes no obligation to update its estimates.

Somanetics to Host Conference Call

Somanetics will web cast its 2008 second quarter conference call at 10:00 a.m. (ET) today. To join the webcast, visit the Investor Center section of Somanetics' website at www.somanetics.com and click on the "Second Quarter 2008 Conference Call" link. The call also will be archived on the website.

About Somanetics

Somanetics Corporation (Nasdaq: SMTS) develops, manufactures and markets the INVOS(R) Cerebral/Somatic Oximeter, a non-invasive patient monitoring system that continuously measures changes in the blood oxygen levels in the brain and elsewhere in the body in patients with or at risk for restricted blood flow. Surgeons, anesthesiologists and other medical professionals can use the information provided by the INVOS System, in conjunction with other available information, to identify oxygen imbalances in tissues beneath the sensor and take necessary corrective action, potentially improving patient outcomes and reducing the costs of care. Somanetics supports its customers through a direct U.S. sales force and clinical education team. Covidien markets INVOS System products in Europe, Canada, the Middle East and South Africa and Edwards Lifesciences represents INVOS System products in Japan. For more information visit www.somanetics.com .

Safe-Harbor Statement

Except for historical information contained herein, the matters discussed in this news release, including financial guidance for fiscal year 2008, are forward-looking statements, the accuracy of which is necessarily subject to risks and uncertainties. Actual results may differ significantly from results discussed in the forward-looking statements and may be affected by, among other things, economic conditions in general and in the healthcare market, the demand for and market acceptance of our products in existing market segments and in new market segments we plan to pursue, our current dependence on the INVOS System and disposable sensors, our dependence on distributors and independent sales representative firms for a substantial portion of our sales, our dependence on single-source suppliers, potential competition, the effective management of our growth, our ability to attract and retain key personnel, the potential for products liability claims, government regulation of our business, changes in our deferred tax assets, future equity compensation expenses, the challenges associated with developing new products and obtaining and maintaining regulatory approvals if necessary, research and development activities, the lengthy sales cycle for our products, sales employee turnover, changes in our actual or estimated future taxable income, changes in accounting rules, enforceability and the costs of enforcement of our patents, potential infringements of others' patents and the other factors set forth from time to time in Somanetics' Securities and Exchange Commission filings, including its 2007 Annual Report on Form 10-K filed on February 6, 2008 and First Quarter Form 10-Q filed on April 2, 2008.

                               SOMANETICS CORPORATION
                                  BALANCE SHEETS

                                                    May 31,       November 30,
                                                     2008             2007

    ASSETS                                        (Unaudited)     (Audited)
    CURRENT ASSETS:
      Cash and cash equivalents                   $43,835,916    $33,172,977
      Marketable securities                         7,992,244     18,978,074
      Accounts receivable                           7,896,049      7,486,571
      Inventory                                     2,675,083      1,998,284
      Prepaid expenses                                285,212        560,885
      Accrued interest receivable                     117,708        551,117
      Deferred tax asset - current                  2,123,121      3,069,929
        Total current assets                       64,925,333     65,817,837
    PROPERTY AND EQUIPMENT (at cost):
      Demonstration and no capital cost sales
       equipment at customers                       3,602,353      3,386,287
      Machinery and equipment                       1,519,018      1,531,387
      Furniture and fixtures                          494,061        307,919
      Leasehold improvements                          197,450        196,700
        Total                                       5,812,882      5,422,293
      Less accumulated depreciation and
       amortization                                (3,017,029)    (2,931,596)
        Net property and equipment                  2,795,853      2,490,697
    OTHER ASSETS:
      Long-term investments                        21,193,809     33,653,099
      Deferred tax asset - non-current              1,807,586      3,004,755
      Other                                            15,000         15,000
      Intangible assets, net                               --          3,097
        Total other assets                         23,016,395     36,675,951
    TOTAL ASSETS                                  $90,737,581   $104,984,485

    LIABILITIES AND SHAREHOLDERS' EQUITY
    CURRENT LIABILITIES:
      Accounts payable                             $1,279,471     $1,118,003
      Accrued liabilities                           1,280,684      1,701,481
        Total current liabilities                   2,560,155      2,819,484
    COMMITMENTS AND CONTINGENCIES
    SHAREHOLDERS' EQUITY:
      Preferred shares; authorized, 1,000,000 shares
       of $.01 par value; no shares issued or
       outstanding                                         --             --
      Common shares; authorized, 20,000,000 shares
       of $.01 par value; issued and outstanding,
       12,436,424 shares at May 31, 2008, and
       13,443,961 shares at November 30, 2007         124,364        134,440
      Additional paid-in capital                  101,021,202    119,079,383
      Accumulated deficit                         (12,968,140)   (17,048,822)
        Total shareholders' equity                 88,177,426    102,165,001
    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY    $90,737,581   $104,984,485



                           STATEMENTS OF OPERATIONS
                                 (Unaudited)

                                  Three Months               Six Months
                                  Ended May 31,             Ended May 31,
                                2008         2007         2008         2007

    NET REVENUES           $12,740,063   $9,122,178  $21,433,338  $17,147,050
    COST OF SALES            1,679,256    1,047,117    2,696,081    2,048,840
      Gross Margin          11,060,807    8,075,061   18,737,257   15,098,210

    OPERATING EXPENSES:
      Research, development
       and engineering         231,901      164,421      562,337      277,787
      Selling, general and
       administrative        6,769,838    5,270,093   13,267,984   10,589,529
        Total operating
         expenses            7,001,739    5,434,514   13,830,321   10,867,316

    OPERATING INCOME         4,059,068    2,640,547    4,906,936    4,230,894

    OTHER INCOME:
      Interest income          700,685    1,005,598    1,635,102    1,966,086
        Total other income     700,685    1,005,598    1,635,102    1,966,086
    INCOME BEFORE INCOME
     TAXES                   4,759,753    3,646,145    6,542,038    6,196,980

    INCOME TAX EXPENSE      (1,707,501)  (1,239,689)  (2,461,356)  (2,106,973)

    NET INCOME              $3,052,252   $2,406,456   $4,080,682   $4,090,007

    NET INCOME PER COMMON
     SHARE - BASIC               $0.23        $0.18        $0.31        $0.31

    NET INCOME PER COMMON
     SHARE - DILUTED             $0.21        $0.17        $0.28        $0.28

    WEIGHTED AVERAGE SHARES
      OUTSTANDING - BASIC   13,145,234   13,171,881   13,297,128   13,168,088

    WEIGHTED AVERAGE SHARES
      OUTSTANDING - DILUTED 14,220,477   14,575,237   14,380,547   14,601,768

SOURCE Somanetics Corporation

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