SonoSite, Inc. (Nasdaq:SONO), the world leader in hand-carried
ultrasound, today announced record operating results for the fourth
quarter and full year ended December 31, 2005. Worldwide revenue in
the fourth quarter of 2005 grew 22% to $45.2 million compared with
$37.1 million in the fourth quarter of 2004. For the full year of
2005, the company's total revenue grew 27% to $147.5 million
compared with $115.8 million for the prior year. Changes in the
foreign currency rates decreased the revenue growth rate by
approximately 3% in the fourth quarter and 1% for the full year. In
the fourth quarter of 2005, pre-tax income rose 96% to $6.9 million
compared with $3.5 million in the fourth quarter of 2004. The
company reported net income for the fourth quarter of 2005 of $5.3
million, or $0.32 per diluted share. This compares with fourth
quarter 2004 adjusted net income of $2.2 million, or $0.14 per
diluted share. This comparison excludes a one-time, non-cash tax
benefit in 2004 attributable to the reversal of the $20.8 million
valuation allowance for US deferred taxes. Inclusive of this
amount, the total net tax benefit was $19.5 million in the fourth
quarter of 2004. In the fourth quarter of 2004, SonoSite reported
net income of $23.0 million, or $1.42 per diluted share, including
this tax benefit. For the full year 2005, SonoSite's pre-tax income
rose 114% to $7.8 million compared with $3.7 million for 2004. The
company reported net income for 2005 of $5.4 million, or $0.34 per
diluted share, compared with adjusted net income of $2.2 million,
or $0.14 per diluted share for 2004. The company reported net
income for 2004 of $23.0 million or $1.46 per diluted share,
including the previously mentioned tax benefit of $20.8 million.
"Sales of the MicroMaxx system accelerated and grew to 40% of total
revenue in the fourth quarter of 2005," said Kevin M. Goodwin,
SonoSite President and CEO. "The system accounted for approximately
half of our direct sales revenue. The US had a particularly strong
finish to the year with 37% growth in the fourth quarter and 30%
for the year. Our international business grew 6% in the fourth
quarter and 24% for the year." "The international growth rate
lagged in the fourth quarter due to the ongoing transition in our
German subsidiary and Asian business which negatively impacted our
worldwide growth rate for the year. Our international growth rate,
excluding Germany, China and Asia, was 37% for the year," Goodwin
stated. "With the recruitment of two proven ultrasound executives,
Dieter Schwartmann in December, and Peter Hsu in February 2006, we
expect to turn this situation around and begin to capitalize on the
large potential of the German and Asian markets. Elsewhere our
international business units showed solid growth, specifically the
UK, Spain, France, Canada, Latin America, Australia and New
Zealand." "We took several significant steps in 2005 to move the
company forward, increase our profitability, and strengthen our
competitive position. Most notable was the introduction of our
third generation ASIC technology embodied in the MicroMaxx system,"
Mr. Goodwin continued. "We strengthened our management team, in
international and domestic sales as well as global marketing. We
believe that we are well positioned to expand the applications of
hand-carried ultrasound and capture further gains in 2006." The
company's gross margin rose to a record 71.5 % in the fourth
quarter compared with 70.0% in the fourth quarter of 2004. The
increase in gross margin over the prior year was due to improved
product mix and increased manufacturing efficiencies. For the full
year of 2005, gross margin increased to 70.4% compared with 67.4%
for the prior year. Operating expenses grew 17% to $26.0 million
during the fourth quarter of 2005 compared with the same period in
2004. For the full year, operating expenses grew 30% to $96.9
million compared with 2004, and included significant costs
associated with the launch of the MicroMaxx system and legal
expenses associated with pretrial activity in an ongoing patent
litigation case. The effective tax rate was 23.4% for the fourth
quarter and 30.7% for 2005. The Company currently recognizes tax
expense on its US income but not on its international income.
Instead, the Company continues to provide a full valuation
allowance against its international results. Until the valuation
allowance is reversed for the international subsidiaries, the tax
rate will fluctuate dependent upon the profitability of the
international subsidiaries. US revenue accounted for 59% of total
revenue in the fourth quarter of 2005 and 54% for the full year.
Cash, cash equivalents and investments increased $6.8 million
during the quarter and totaled $70.8 million as of December 31,
2005. Company Outlook for 2006 For 2006, management continues to
target a revenue growth rate of approximately 25% and expects full
year revenue to be in a range of $180 - 187 million. Quarterly
revenue is expected to vary following historical seasonal patterns
with approximately 20% of total annual revenue in the first quarter
growing to approximately 32% of total annual revenue in the fourth
quarter. Factors such as timing of large project orders from
governmental or international entities cause variability in
quarterly growth rate comparisons, as was the case in the first
quarter of 2005. The company expects annual and quarterly gross
margin to approximate 71%. Excluding stock based compensation
expense, operating expenses for the year are expected to
approximate 59% to 60% of revenue and to vary following historical
patterns with approximately 24% of total annual operating expense
in the first quarter growing to approximately 27% of total
operating expense in the fourth quarter. As of January 1, 2006, the
company adopted FAS 123R Share Based Payments and estimates that
stock based compensation expense will be approximately $9.0 million
on a pre-tax basis in 2006, with an expense of approximately $2
million in the first quarter and $2.3 million quarterly thereafter.
Other income is expected to be in a range of $1.5 - 1.8 million for
the year. The company expects its overall effective tax rate for
2006 to be approximately 34% to 36%. Having received a tax benefit
for its R&D activities in 2005, the company has not reflected
this benefit in its projected 2006 tax rate, pending renewal of the
credit by Congress. Due to the utilization of its US net operating
loss carry forwards, the company's tax expense is largely a
non-cash item. For the year, the weighted average fully diluted
common shares outstanding is expected to be approximately 17
million shares. Conference Call Information SonoSite will hold a
conference call today at 1:30 p.m. PT/4:30 p.m. ET. The call will
be broadcast live and can be accessed via the "Investors" Section
of SonoSite's website at www.sonosite.com. A replay of the audio
webcast will be available beginning February 15, 2006, 4:30 p.m.
(PT) until March 1, 2006, at 9:59 p.m. (PT) by dialing 719-457-0820
or toll-free 888-203-1112. The confirmation code -- 2555824 -- is
required to access the replay. The call will also be archived on
SonoSite's website at http://ir.sonosite.com. About SonoSite
SonoSite, Inc. (www.sonosite.com) is the innovator and world leader
in hand-carried ultrasound, with an installed base of more than
25,000 systems. The company, headquartered near Seattle,
Washington, is represented by eight subsidiaries and a global
distribution network in over 75 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. The company employs
approximately 500 people worldwide. Forward-looking Information and
the Private Litigation Reform Act of 1995 Certain statements in
this press release relating to the market acceptance of our
products, possible future sales relating to expected orders, and
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 and are subject to known and unknown risks and
uncertainties and are based on potentially inaccurate assumptions.
Factors that could affect the rate and extent of market acceptance
of our products, the receipt of expected orders, and our financial
performance include our ability to successfully manufacture, market
and sell our new MicroMaxx(TM) ultrasound systems, our ability to
accurately forecast customer demand for our products, our ability
to manufacture and ship our systems in a timely manner to meet
customer demand, timely receipts of regulatory approvals to market
and sell our products, the outcome of pending patent litigation and
expenses associated with such litigation, regulatory and
reimbursement changes in various national health care markets,
constraints in government and public health spending, the ability
of our distribution partners to market and sell our products, as
well as other factors described under the heading, "Important
Factors that May Affect Our Business, Our Results of Operations and
Our Stock Price," included in our latest periodic report 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.
-0- *T SonoSite, Inc. Selected Financial Information Consolidated
Statements of Operations (in thousands except per share data)
(unaudited) Three Months Ended Year Ended December 31, December 31,
2005 2004 2005 2004 -------- -------- --------- --------- Revenue $
45,202 $ 37,103 $ 147,491 $ 115,817 Cost of revenue 12,868 11,123
43,652 37,755 Gross margin 32,334 25,980 103,839 78,062 Gross
margin percentage 71.5% 70.0% 70.4% 67.4% Operating expenses:
Research and development 4,178 3,581 15,195 12,644 Sales and
marketing 17,813 15,424 68,090 51,824 General and administrative
4,006 3,231 13,662 10,296 Total operating expenses 25,997 22,236
96,947 74,764 Other income (loss), net 604 (204) 956 362 Income
before income taxes 6,941 3,540 7,848 3,660 Income tax (provision)
benefit (1,624) 19,481 (2,412) 19,312 Net income $ 5,317 $ 23,021 $
5,436 $ 22,972 -------- -------- --------- --------- Adjusted net
income:(a) Less: Tax benefit of valuation allowance reversal 20,790
20,790 Adjusted net income $ 2,231 $ 2,182 -------- --------- Net
income per share: Basic $ 0.34 $ 1.53 $ 0.35 $ 1.55 --------
-------- --------- --------- Diluted $ 0.32 $ 1.42 $ 0.34 $ 1.46
-------- -------- --------- --------- Adjusted net income per
share(a) Basic $ 0.15 $ 0.15 -------- --------- Diluted $ 0.14 $
0.14 -------- --------- Weighted average common and potential
common shares used in computing net income and adjusted net income
per share: Basic 15,810 15,089 15,549 14,829 -------- --------
--------- --------- Diluted 16,397 16,157 16,175 15,737 --------
-------- --------- --------- (a) Adjusted net income and adjusted
net income per share are non-GAAP measures. These amounts exclude
the U.S. valuation allowance reversal, which was a one-time,
non-cash tax benefit, to provide a better basis of comparison of
the 2005 quarterly and annual results with the results for 2004.
Condensed Consolidated Balance Sheets (in thousands) (unaudited)
December 31, December 31, 2005 2004 Cash and cash equivalents $
26,809 $ 17,272 Short-term investment securities 25,426 14,319
Accounts receivable, net 42,414 33,586 Inventories 20,735 17,990
Deferred income taxes 6,822 3,596 Prepaid expenses and other
current assets 2,345 2,476 Total current assets 124,551 89,239
Property and equipment, net 7,388 7,632 Investment securities
18,569 32,490 Deferred income taxes 19,137 21,189 Goodwill 1,751
972 Other assets 3,152 3,570 Total assets $ 174,548 $ 155,092
----------- ---------- Accounts payable $ 4,148 $ 6,360 Accrued
expenses 12,974 10,747 Deferred revenue 2,937 2,762 Total current
liabilities 20,059 19,869 Deferred rent 290 228 Deferred revenue
2,157 1,760 Total liabilities 22,506 21,857 Shareholders' equity:
Common stock and additional paid-in capital 212,868 196,470
Deferred stock compensation (2,671) -- Accumulated deficit (59,008)
(64,444) Accumulated other comprehensive income 853 1,209 Total
shareholders' equity 152,042 133,235 Total liabilities and
shareholders' equity $ 174,548 $ 155,092 ----------- ---------- *T
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