SONO Sonos Inc

SonoSite, Inc. (Nasdaq:SONO), the world leader and specialist in bedside and point-of-care ultrasound, today reported financial results for the first quarter ended March 31, 2011.

REVENUE

Revenue for the first quarter of 2011 was $71.1 million, an increase of 27% compared to $56.0 million in the first quarter of 2010. Revenue from VisualSonics, Inc., acquired in June 2010, was $8.2 million for the quarter.

Foreign currency rates had a 2% favorable impact on first quarter revenue results.

FIRST QUARTER HIGHLIGHTS

• The US Sector delivered another quarter of double-digit revenue growth, up $4.5 million or 21%;
• Strong performance by the US Enterprise channel, which grew 71% compared to the prior year;
• VisualSonics successfully launched the Vevo® LAZR Photoacoustics Imaging system at the American Association of Cancer Research, receiving positive feedback and interest among scientific researchers.

EBITDAS, EBITDA and Operating Income (EBIT)

First Quarter Results

First quarter EBITDAS was $8.7 million or 12% of revenue, an increase of 62% over the prior year.

EBITDA was $6.6 million or 9% of revenue, an increase of 52% over the prior year.

EBIT was $4.0 million or 6% of revenue, an increase of 51% over the prior year.

EPS

EPS was $0.07 per share for the first quarter of 2011 versus $0.08 per share in 2010. SonoSite recognized an income tax expense of $0.7 million in 2011 compared to an income tax benefit of $1.0 million in the prior year.

COMMENTARY

“We finished the first quarter strong with the fifth consecutive quarter that our revenue growth has exceeded expectations,” said Kevin M. Goodwin, SonoSite President and CEO. “We also saw positive trends and sustained growth in the hospital channel, fueling our confidence in the expansion of point-of-care visualization, which is significant as we prepare to roll-out our new product portfolio in the upcoming months. Our international business also performed well despite facing economic uncertainties and the challenges in Japan.”

Mr. Goodwin continued, “Our newly acquired VisualSonics (VSI) business also had a solid quarter, contributing eight million dollars to the top line, in spite of delays in NIH research funding, which impacted revenue performance due to delays in the U.S. Government budget approval. Additionally, in the quarter, VSI launched the Vevo LAZR Photoacoustics Imaging system at the recent American Association of Cancer Research conference and received strong interest among researchers. We are confident that the photoacoustics technology will transform scientific discovery and extend beyond cancer research.”

FINANCIAL OUTLOOK

“We have seen positive secular momentum for five consecutive quarters and have become much more confident about the long-term opportunity for significant growth in point-of-care visualization,” said Marcus Smith, SonoSite’s CFO. “This, combined with the successful acquisition of VisualSonics, a robust pipeline of innovative new products, and thirteen years of practice creating and growing new markets indicates that we are in a unique position to significantly expand our reach and penetration.”

Mr. Smith continued, “With this in mind, we are gearing up to go after this opportunity in a more aggressive manner. Management, with the full agreement of our Board of Directors, will be implementing a plan that involves a step-up in our growth investment over the next three years aimed at significantly increasing our value.”

We are planning investment opportunities that will:

• Significantly increase demand generation and the profile of the company,
• Deliver our most ambitious wave of new innovations in the company’s thirteen year history, and
• Continue to expand our geographic reach to fully penetrate key market opportunities internationally.

Reflecting the current investment strategy:

• Management is now targeting operating expenses of $195 - $197 million with the majority of the year-over-year increase occurring in the second and third quarters,
• We are updating our 2011 revenue growth target to 15-20% versus the previously announced 13-18% range, and
• If current 2011 foreign exchange forecasts for a weakening U.S. dollar hold, we estimate that there will be a potential $2 million increase to operating expenses offset by a potential $5 million increase to revenues; due to the volatility of foreign exchange rates, this impact is not reflected in management’s updated targets.

Mr. Smith continued, “As we have stated, profitable growth remains the key operating philosophy and revenue growth remains the key driver of long-term operating leverage. Our long-term objective is 15% revenue growth per year through 2014, which would take the company above the half billion dollar mark, and produce 20% operating margins.”

Non-GAAP Measures

This release includes discussions of EBITDA and EBITDAS; these are non-GAAP financial measures. SonoSite believes these measures are a useful complement to results provided in accordance with GAAP. “EBITDA” refers to operating income (EBIT) before depreciation and amortization. “EBITDAS” refers to operating income (EBIT) before depreciation, amortization and stock-based compensation.

Conference Call Information

SonoSite will hold a conference call on April 25th 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 April 25th at 5:30 pm PT and will be available until May 9th at 11:59 pm PT by dialing 719-457-0820 or toll-free 888-203-1112. The confirmation code 2602385 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 bedside and point-of-care ultrasound and an industry leader in ultra high-frequency micro-ultrasound technology and impedance cardiography equipment. Headquartered near Seattle, the company is represented by fourteen 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 are “forward-looking statements” for the purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements relating to our future financial condition and results of operations and statements regarding planned product launches and the potential market opportunity for these products. 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 we do not achieve the financial results that we expect, the risk we are unable to launch our new products as and when expected, the risk that our existing and new products do not achieve market success 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 March 31, 2011 2010 Revenue $ 71,081 $ 55,977 Cost of revenue   21,128     16,280   Gross margin 49,953 39,697   Operating expenses: Research and development 9,445 7,597 Sales, general and administrative   36,474     29,429     Total operating expenses 45,919 37,026   Operating income 4,034 2,671   Other loss, net   (2,363 )   (2,262 )   Income before income taxes 1,671 409   Income tax provision (benefit)   667     (973 )   Net income $ 1,004   $ 1,382     Net income per share: Basic $ 0.07   $ 0.08     Diluted $ 0.07   $ 0.08     Weighted average common and potential common shares outstanding: Basic   13,608     16,284     Diluted   14,152     16,823    

Reconciliation of Non-GAAP Measures - EBITDA and EBITDAS:

  Operating income (EBIT) $ 4,034 $ 2,671   Depreciation and amortization   2,588   1,679   EBITDA 6,622 4,350   Stock-based compensation   2,039   1,009   EBITDAS $ 8,661   $ 5,359   Condensed Consolidated Balance Sheets   (in thousands) (unaudited)   As of March 31, 2010 December 31, 2010 ASSETS Current Assets Cash and cash equivalents $ 83,208 $ 78,690 Accounts receivable, net 77,699 81,516 Inventories 39,947 37,126 Deferred tax assets, current 8,961 7,801 Prepaid expenses and other current assets   10,597     12,384   Total current assets 220,412 217,517   Property and equipment, net 9,082 9,133 Deferred tax assets, net 3,418 4,373 Investment in affiliate 8,000 8,000 Goodwill 39,851 37,786 Identifiable intangible assets, net 46,343 47,423 Other assets   5,592     4,823   Total assets $ 332,698   $ 329,055       LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable $ 11,369 $ 10,597 Accrued expenses 24,036 32,535 Deferred revenue   6,481     6,042     Total current liabilities 41,886 49,174 Long-term debt, net 98,555 97,379 Deferred tax liability, net 3,167 1,811 Deferred revenue 14,991 15,236 Other non-current liabilities, net   12,614     12,565     Total liabilities $ 171,213   $ 176,165     Commitments and contingencies   Shareholders' Equity: Common stock and additional paid-in capital 304,658 299,005 Accumulated deficit (147,970 ) (148,975 ) Accumulated other comprehensive income   4,797     2,860   Total shareholders' equity   161,485     152,890   Total liabilities and shareholders' equity $ 332,698   $ 329,055   Condensed Consolidated Statements of Cash Flow   (in thousands) (unaudited)   Three Months Ended March 31, 2011 2010   Operating activities: Net income $ 1,004 $ 1,382 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,616 1,679 Stock-based compensation 2,039 1,009 Deferred income tax provision (41 ) 143 Amortization of debt discount and debt issuance costs 1,165 1,179 Excess tax benefit from stock-based compensation (720 ) (436 ) Other 94 (1 ) Changes in operating assets and liabilities: Changes in working capital   (3,603 ) 8,782     Net cash provided by operating activities 2,554 13,737   Investing activities: Purchases of investment securities - (42,246 ) Proceeds from the sales/maturities of investment securities - 53,298 Purchases of property and equipment (689 ) (1,006 ) Investment in affiliate   -   (4,000 )   Net cash (used in) provided by investing activities (689 ) 6,046   Financing activities: Excess tax benefit from exercise stock-based awards 720 436 Minimum tax withholding on stock-based awards (121 ) (692 ) Stock repurchases including transaction costs - (90,046 ) Payment of contingent purchase consideration for LumenVu, Inc. (300 ) (425 ) Proceeds from exercise of stock-based awards 3,047 1,568 Repayment of long-term debt   (7 ) (5 )   Net cash provided by (used in) financing activities 3,339 (89,164 )   Effect of exchange rate changes on cash and cash equivalents   (686 )   783     Net change in cash and cash equivalents 4,518 (68,598 ) Cash and cash equivalents at beginning of year   78,690     183,065   Cash and cash equivalents at end of year $ 83,208   $ 114,467     Supplemental disclosure of cash flow information: Cash (refund) paid for income taxes $ (754 ) $ 333     Cash paid for interest $ 2,156   $ 2,156