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 third quarter and nine months ended September 30, 2011.

REVENUE

Revenues for the third quarter of 2011 were $75.7 million, rising 10% in comparison to $68.5 million in the third quarter of 2010.

Revenues for the nine months of 2011 were $219.5 million, compared to $186.1 million in 2010, an increase of 18%.

Overall order booking rates increased 16% in the quarter.

Foreign exchange contributed to a 2.1% favorable impact on third quarter results and a 2.8% favorable impact on the first nine months of 2011.

EBITDAS, EBITDA and OPERATING INCOME (EBIT)

Third Quarter:

For the quarter, EBITDAS includes non-recurring severance charges of $1.3 million from SG&A cost restructuring. Operating expense run rate savings are projected at $6.0 million for 2012, positioning the company for improved operating margins while launching new products and driving marketing initiatives in 2012.

EBITDAS was $8.5 million, or 11% of revenue, a decrease of 12% over the third quarter of 2010. These results reflect a planned increase in marketing and new product development that the company projected during its first quarter of 2011 earnings call.

EBITDA was $6.4 million, 8% of revenue, and down 17%, and EBIT was $3.9 million, 5% of revenue, and down 24% compared to 2010, as planned.

Year-to-Date Results

EBITDAS was $23.6 million, or 11% of revenue, and a decrease of 2% over the prior year.

EBITDA was $17.6 million, 8% of revenue, and down 11%, and EBIT was $9.9 million, 4% of revenue, and down 29% compared to 2010.

EPS

EPS was $0.05 per share for the third quarter of 2011 versus $0.07 per share in 2010. For the nine months year-to-date, EPS was $0.04 per share versus $0.27 per share in the prior year, which was impacted by non-recurring severance charges of $1.5 million, and planned marketing and new product investments.

THIRD QUARTER AND YEAR-TO-DATE 2011 COMMENTARY

Operational

• Gross margins improved sequentially to 71.6% from 70.5% in the previous quarter of 2011.
• The third quarter was led by a strong revenue performance in North America, which grew 24% and increased by 19% for the nine months. This growth was driven from strong momentum in the company’s core markets.
• Overall bookings grew 16% in the third quarter, resulting in a healthy backlog heading into the fourth quarter of 2011.
• International revenues increased by 1% in the quarter, and were level on a year-to-date basis. Economic conditions remain challenging in Europe. Australia also faced some late quarter revenue delays, due to a slowdown in healthcare spending.
• Revenues from the pre-clinical business, VisualSonics, Inc. (VSI), came in below expectations, decreasing by 6.0% in the third quarter. VSI sales in North America were up 52%, despite a lengthening in the National Institute of Health’s (NIH) funding cycle. Sales were also impacted by a softer market in Europe and ongoing channel implementation internationally.

New Products and Marketing

• The company introduced two new products from its strong pipeline:
  • “The Edge,” an improved hand-carried ultrasound system was introduced internationally and made its debut at the European Society of Regional Anesthesia conference in Dresden, Germany. International shipments are projected to begin in the fourth quarter of 2011, following CE marking, and US shipments will follow later in the quarter, or early 2012, pending 510(k) clearance.
  • The BioZ® Cardio Profile, a new impedance cardiography tool, was first introduced, and well received, at the American Society of Anesthesiologists on October 15th. The BioZ product targets core hospital markets where there is a clinical need for hemodynamic monitoring during surgical procedures. The product is currently being shipped worldwide.

National Marketing Campaign

• The company kicked off a robust national marketing campaign that included its first national TV commercial to increase unaided physician and provider awareness. After four weeks of tracking data, metrics have shown an increase in web traffic, lead generation and sales opportunities.

Cost and Safety Advocacy

• SonoSite continued its “Cost and Safety Advocacy” with clinical executives, healthcare payers and policymakers by showcasing a strengthening database of clinical and economic evidence, clarifying the cost effectiveness, safety, and clinical value of point-of-care ultrasound. This data is proving to be meaningful as hospital decision makers prepare for the financial implications of new regulations such as Medicare’s Value Based Purchasing, which focuses on cost reductions in the hospital.

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 October 25th at 1:30 p.m. PT/4:30 p.m. 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 25th at 4:30 p.m. PT and will be available until November 8th at 9:59 p.m. PT by dialing (719) 457-0820 or toll-free (888) 203-1112. The confirmation code 7745091 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 September 30, Nine Months Ended September 30, 2011 2010 2011 2010 Revenue $ 75,732 $ 68,538 $ 219,526 $ 186,064 Cost of revenue   21,542     19,675     64,148     53,150   Gross margin 54,190 48,863 155,378 132,914   Operating expenses: Research and development 10,716 8,455 30,807 23,263 Sales, general and administrative   39,584     35,320     114,695     95,745     Total operating expenses 50,300 43,775 145,502 119,008   Operating income 3,890 5,088 9,876 13,906   Other loss, net   (3,313 )   (3,799 )   (8,789 )   (8,498 )   Income before income taxes 577 1,289 1,087 5,408   Income tax (benefit) provision   (143 ) 347   452   1,208     Net income $ 720   $ 942   $ 635   $ 4,200     Net income per share: Basic $ 0.05   $ 0.07   $ 0.05   $ 0.28     Diluted $ 0.05   $ 0.07   $ 0.04   $ 0.27     Weighted average common and potential common shares outstanding: Basic   13,893     13,676     13,783     14,844     Diluted   14,323     14,147     14,285     15,347    

Reconciliation of Non-GAAP Measures:

  Reconciliation of Adjusted EBIT: Operating income (EBIT) $ 3,890 $ 5,088 $ 9,876 $ 13,906   Depreciation and amortization   2,460   2,528     7,692   5,818   EBITDA 6,350 7,616 17,568 19,724   Stock-based compensation   2,190     2,037     6,002     4,245   EBITDAS $ 8,540   $ 9,653   $ 23,570   $ 23,969       Condensed Consolidated Balance Sheets     (in thousands) (unaudited)   As of September 30, 2011 December 31, 2010 ASSETS Current Assets Cash and cash equivalents $ 75,471 $ 78,690 Accounts receivable, net 78,473 81,516 Inventories 47,878 37,126 Deferred tax assets, current 8,939 7,801 Prepaid expenses and other current assets   19,205     12,384   Total current assets 229,966 217,517   Property and equipment, net 9,848 9,133 Deferred tax assets, net 3,460 4,373 Investment in affiliate 8,000 8,000 Goodwill 37,243 37,786 Identifiable intangible assets, net 40,698 47,423 Other assets   3,200     4,823   Total assets $ 332,415   $ 329,055       LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable $ 12,829 $ 10,597 Accrued expenses 23,532 32,535 Deferred revenue   6,929     6,042     Total current liabilities 43,290 49,174 Long-term debt, net 100,635 97,379 Deferred tax liability, net 2,768 1,811 Deferred revenue 13,072 15,236 Other non-current liabilities, net   11,821     12,565     Total liabilities $ 171,586   $ 176,165     Commitments and contingencies   Shareholders' Equity: Common stock and additional paid-in capital 309,951 299,005 Accumulated deficit (148,340 ) (148,975 ) Accumulated other comprehensive (loss) income   (782 )   2,860   Total shareholders' equity   160,829     152,890   Total liabilities and shareholders' equity $ 332,415   $ 329,055       Condensed Consolidated Statements of Cash Flow     (in thousands) (unaudited)   Nine Months Ended September 30, 2011 2010   Operating activities: Net income $ 635 $ 4,200 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 7,671 5,796 Stock-based compensation 6,002 4,245 Deferred income tax provision (120 ) (1,918 ) Amortization of debt discount and debt issuance costs 3,831 3,663 Excess tax benefit from stock-based awards (1,175 ) (847 ) Other (426 ) 673 Changes in operating assets and liabilities: Changes in working capital   (20,560 )   1,715     Net cash (used in) provided by operating activities (4,142 ) 17,527   Investing activities: Purchases of investment securities - (79,921 ) Proceeds from the sales/maturities of investment securities - 154,698 Purchases of property and equipment (3,276 ) (1,455 ) Investment in affiliate - (8,000 ) Purchase of VisualSonics, Inc., net of cash acquired   -     (61,217 )   Net cash (used in) provided by investing activities (3,276 ) 4,105   Financing activities: Excess tax benefit from exercise stock-based awards 1,175 847 Minimum tax withholding on stock-based awards (892 ) (1,065 ) Stock repurchases including transaction costs - (126,103 ) Payment of contingent purchase consideration for LumenVu, Inc. (300 ) (425 ) Proceeds from exercise of stock-based awards 5,141 4,263 Repayment of long-term debt   (298 )   (8,871 )   Net cash provided by (used in) financing activities 4,826 (131,354 )   Effect of exchange rate changes on cash and cash equivalents   (627 )   (1,594 )   Net change in cash and cash equivalents (3,219 ) (111,316 ) Cash and cash equivalents at beginning of year   78,690     183,065   Cash and cash equivalents at end of year $ 75,471   $ 71,749     Supplemental disclosure of cash flow information: Cash paid for income taxes $ 3,267   $ 7,184     Cash paid for interest $ 4,313   $ 4,476