SonoSite, Inc. (Nasdaq:SONO), the world leader in hand-carried
ultrasound, today reported financial results for the first quarter
ended March 31, 2006. Worldwide revenue in the first quarter of
2006 grew 9% to $36.9 million compared with $34.0 million in the
first quarter of 2005. The first quarter of 2005 included over $3
million of enterprise project revenue from US and international
government entities and impacts the comparison with 2006. Changes
in the foreign currency rates decreased the revenue growth rate by
approximately 3% in the first quarter. Overall, US revenue grew 15%
in the first quarter over the prior year with sales growing 45%
from direct sales. As expected, the company's US enterprise sales
which are primarily comprised of sales to governmental entities
declined 57% in the first quarter of 2006 due to the high volume of
project orders in the comparable quarter of the prior year.
International revenue grew 3% over the prior year. The prior year's
first quarter also included a large government order. Changes in
foreign currency rates reduced the international growth rate by 5%.
US revenue accounted for 49% of total revenue in the first quarter
of 2006. The company's 2006 financial results reflect adoption of
FAS 123R, "Share-Based Payment", on January 1, 2006. For the first
quarter of 2006, SonoSite reported a net loss of $363,000, or $0.02
per share, compared with net income of $725,000, or $0.05 per
diluted share, in the prior year. First quarter results in 2006
included $1.3 million of stock-based compensation, or $846,000 and
$0.05 per share on an after-tax basis. Of this amount, the adoption
of FAS 123R had an after-tax impact of $661,000, or $0.04 per
share, and compensation from restricted stock grants had an
after-tax impact of $185,000, or $0.01 per share. On a comparative
after-tax basis, the first quarter of 2005 included $12,000 of
stock-based compensation for restricted stock grants. "We are
highly encouraged by the performance and momentum in our US direct
sales organization which turned in a 45% sales increase over last
year's first quarter, reflecting the continuing success of the
MicroMaxx system and improved execution," said Kevin M. Goodwin,
SonoSite President and CEO. "As expected, enterprise sales were
down in the quarter given the tough comparison of a year ago. This
business is historically hard to predict and very variable." Mr.
Goodwin continued, "Internationally, we saw excellent growth in a
number of our markets, although, overall performance was impacted
by currency translation and results in Japan, which we expect will
show improvement later this year. The year-over-year comparison was
also difficult due to a large government order in our international
business as well. We are seeing good evidence that Germany is on a
positive track with the addition of experienced sales talent and
the recently announced alliance with Siemens. The MicroMaxx system
continues to enjoy strong worldwide acceptance and rose to account
for 46% of the quarter's worldwide revenue." Operating expenses
grew 22% to $27.1 million in the first quarter of 2006 compared
with the same period in 2005. Excluding stock-based compensation
expense, operating expenses grew 16% in the quarter over the prior
year to $25.8 million. The increase in operating expenses primarily
resulted from investment in the company's international sales and
marketing infrastructure and expansion of the US enterprise
business unit and sales education initiatives. Cash, cash
equivalents and investments increased by $9.4 million to $80.2
million as of March 31, 2006. Company Outlook for Second Quarter
and 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. The company expects second quarter
revenue to grow approximately 25% over the prior year's second
quarter. Quarterly revenue is expected to grow sequentially in the
remainder of the year with approximately one-third of the year's
revenue occurring in the seasonally strong fourth quarter. Factors
such as timing of large project orders from governmental or
international entities cause variability in quarterly growth rate
comparisons. 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. As of
January 1, 2006, the company adopted FAS 123R, "Share-Based
Payment", and estimates that stock-based compensation expense,
including options, restricted stock grants and the employee stock
purchase plan, will be approximately $9.0 million on a pre-tax
basis in 2006, with an expense of approximately $2.5 million
quarterly for the remainder of the year. Other income is expected
to be approximately $2.4 for the year. The company expects its
overall effective tax rate for 2006 to be approximately 33% to 35%.
For the year, the weighted average fully diluted common shares
outstanding is expected to be approximately 17 million shares.
Executive Appointments in Marketing, Sales and Education Announced
SonoSite also announced that Edison (Ed) C. Russell, Senior Vice
President, US Sales has decided to retire, effective June 30, 2006.
Thomas J. Dugan, currently Senior Vice President, Marketing is
being promoted to Senior Vice President, Global Marketing and US
Sales and will assume Mr. Russell's responsibilities for the US
sales organization. The company also announced the promotion of
David R. Levesque, currently Director, Training and Education to
Vice President, Worldwide Global Learning, responsible for sales
and clinical training and customer education. "Under Ed's
leadership, the execution and performance of our US sales team has
steadily improved," Mr. Goodwin said. "We appreciate his many
contributions and wish him the best. Tom's record of accomplishment
and extensive experience in all areas of sales and marketing in the
medical device industry will serve our company well as he
undertakes his new responsibilities. We believe that by
consolidating our sales and marketing organization, our focus and
effectiveness will further improve in our target markets." "In a
relatively short period of time, Dave Levesque has played a key
role in improving the quality of sales training in this company
leading to greatly improved productivity and results," Mr. Goodwin
said. "His promotion underscores the strategic importance we are
placing on expanding customer education." Non-GAAP Measures: This
release includes measures that are not in accordance with generally
accepted accounting principles (non-GAAP). In the first quarter of
2006, the company adopted Financial Accounting Standards Board
Statement No. 123R (SFAS 123R), which requires companies to
recognize the compensation cost associated with stock-based awards
in their financial statements. As a result, our financial
statements for the first quarter of 2006 include stock-based
compensation expense from options and employee stock purchase plan,
but our financial results for the first quarter of 2005 do not
include such stock-based compensation expense because periods prior
to January 1, 2006 are not required to be restated. In addition to
the stock-based compensation from options and employee stock
purchase plan, we have stock-based compensation from grants of
restricted stock units in the first quarter of 2006 and 2005. We
have provided non-GAAP financial information that includes all
stock-based compensation expense. We believe that it is useful to
investors to understand how the expenses associated with
stock-based compensation are reflected on our statements of
operations. For our internal budgets, management uses financial
statements that do not include stock-based compensation expense
related to our stock-based awards. Management also uses the
non-GAAP measures, in addition to the corresponding GAAP measures,
in reviewing the financial results. The non-GAAP information should
not be considered in isolation or as a substitute for measures of
performance prepared in accordance with GAAP. 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 April 26, 2006, at 4:30 p.m. (PT) until May 10, 2006, at
12:00 midnight (PT) by dialing 719-457-0820 or toll-free
888-203-1112. The confirmation code -- 1243705 -- 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 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 the federal appeal of a patent ruling in our favor
in a patent infringement case and expenses associated with such
appeal, 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
March 31, 2006 2005 ---------- ---------- Revenue $ 36,869 $ 33,965
Cost of revenue 10,991 10,120 ---------- ---------- Gross margin
25,878 23,845 Gross margin percentage 70.2% 70.2% Operating
expenses: Research and development 3,956 3,782 Sales and marketing
19,283 15,702 General and administrative 3,846 2,748 ----------
---------- Total operating expenses 27,085 22,232 Other income
(loss), net 660 (224) ---------- ---------- Income (loss) before
income taxes (547) 1,389 Income tax benefit (provision) 184 (664)
---------- ---------- Net income (loss) $ (363) 725 ==========
========== Net income (loss) per share: Basic $ (0.02) $ 0.05
========== ========== Diluted $ (0.02) $ 0.05 ========== ==========
Weighted average common and potential common shares used in
computing net income (loss) per share: Basic 16,013 15,318
========== ========== Diluted 16,013 15,961 ========== ==========
Non-GAAP Measures: Stock-based compensation is as follows: Research
and development $ 268 $ -- Sales and marketing 540 19 General and
administrative 516 -- ---------- ---------- Total stock-based
compensation $ 1,324 $ 19 Income tax effect (478) (7) ----------
---------- Stock-based compensation, net of tax(a) $ 846 $ 12
========== ========== Stock-based compensation, net of tax, per
share, basic and diluted(a) $ 0.05 $ 0.00 ========== ========== (a)
Stock-based compensation, net of tax, and stock-based compensation,
net of tax, per share are non-GAAP measures. These non-GAAP
measures allow for useful comparison with the 2005 quarterly
results. Condensed Consolidated Balance Sheets (in thousands)
(unaudited) March 31, Dec. 31, 2006 2005 --------- --------- Cash
and cash equivalents $ 36,769 $ 26,809 Short-term investment
securities 29,406 25,426 Accounts receivable, net 37,508 42,414
Inventories 21,498 20,735 Deferred income taxes 8,271 6,822 Prepaid
expenses and other current assets 2,548 2,345 --------- ---------
Total current assets 136,000 124,551 Property and equipment, net
6,979 7,388 Investment securities 14,014 18,569 Deferred income
taxes 20,660 19,137 Goodwill 1,805 1,751 Other assets 3,248 3,152
--------- --------- Total assets $182,706 $174,548 =========
========= Accounts payable $ 3,799 $ 4,148 Accrued expenses 11,341
12,974 Deferred revenue 2,979 2,937 --------- --------- Total
current liabilities 18,119 20,059 Deferred rent 303 290 Deferred
revenue 2,220 2,157 --------- --------- Total liabilities 20,642
22,506 Shareholders' equity: Common stock and additional paid-in
capital 220,470 212,868 Deferred stock compensation -- (2,671)
Accumulated deficit (59,371) (59,008) Accumulated other
comprehensive income 965 853 --------- --------- Total
shareholders' equity 162,064 152,042 --------- --------- Total
liabilities and shareholders' equity $182,706 $174,548 =========
========= *T
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