SONO Sonos Inc

SonoSite, Inc. (Nasdaq:SONO), the world leader and specialist in hand-carried ultrasound for the point-of-care, today reported financial results for the third quarter and nine months ended September 30, 2009.

REVENUE

Revenue in the third quarter of 2009 was $53.6 million, a decrease of 13% compared to the third quarter of 2008. For the nine months of 2009, revenue was $157.7 million, a decrease of 9% compared to the nine months of 2008.

Overall revenue included $3.0 million for the quarter and nine months just ended from the recently acquired CardioDynamics International Corporation (CDIC).

Excluding CDIC, revenue in the third quarter was $50.6 million, a decrease of 18% compared to the third quarter of 2008, and $154.7 million for the nine months just ended.

Foreign exchange had zero effect on third quarter revenue, but had a negative impact of $6.7 million or 4% for the nine months just ended.

OPERATING INCOME AND CASH FLOW

Overall, “reported” third quarter operating income was $2.3 million, including charges from CDIC of $3.1 million related to operating results as well as acquisition and integration.

Operating income in the third quarter excluding CDIC was $5.4 million, a 10.7% operating margin versus a $3.0 million or 5.6% operating margin in the second quarter 2009.

Cash Flow

Operating cash flow was $1.6 million for the quarter and $8.9 million for the nine months of 2009, as compared to $13.0 million and $18.0 million for the comparable periods of 2008. Operating cash flow reflects the decline in operating income and the $3.1 million impact of the CDIC acquisition.

Net income

For the third quarter of 2009, the Company recorded a net loss of $0.2 million or $0.01 per share, compared to a net income of $3.7 million or $0.21 per share in 2008. For the nine months of 2009, net income was $1.0 million or $0.06 per share compared to $5.3 million or $0.30 per share, all of which include $3.1 million in charges related to the CDIC acquisition.

COMMENTARY

“While revenue remained sluggish, gross margins and expense management improved, resulting in a better than forecasted operating margins of 10.7% in our core businesses, excluding CDIC,” said Kevin M. Goodwin, SonoSite President and CEO. “The revenue environment remains tight, US revenue levels continued stabilizing and we experienced a few order delays in our international business. Importantly, pricing and expense management have continued to improve, resulting in steadily increasing operating margin performance.”

“We also recently concluded an agreement with General Electric to settle our patent disputes,” Mr. Goodwin stated. “As a part of the settlement, both companies agreed to invest in an important new education and clinical research foundation, which the companies will co-fund, and which will contribute to the long-term market adoption of best practices in point-of-care ultrasound.”

“Our 2009 outlook remains unchanged,” Mr. Goodwin said. “Going forward, we intend to continuously improve our operating margins and cash flow while preparing and positioning ourselves for the resumption of revenue growth. We have numerous growth initiatives in place, alongside a strengthening handle on pricing and expense control. We are targeting operating margins of 11 – 13% for 2010. These targets assume zero to low revenue growth rates. If we realize greater growth rates, our operating margins will be structured to improve further. These projections exclude $3.3 million of expected amortization for intangibles related to the CDIC acquisition.”

As of September 30, 2009, the company held $248 million in cash and investments and had outstanding senior convertible notes of $120 million. The Company used $16.2 million for the CDIC acquisition including re-payment of their debt.

2009 FINANCIAL OUTLOOK

The Company has updated its outlook to include the impact of the CDIC acquisition:

• revenues in the range of $225 - $230 million,
• gross margins are expected to be level with 2008, and
• operating income in the range of $10 - $11 million inclusive of negative $8 million in charges from the CDIC acquisition.

NON-GAAP MEASURES

This release includes a discussion of management measures that are non-GAAP. We believe it is useful for investors to understand the comparison of operating results in 2009 versus 2008 by eliminating the impact of the CDIC related charges using non-GAAP measures.

Conference Call Information

SonoSite will hold a conference call on October 27th 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 October 27, 2009, 5:30 pm PT and will be available until November 10, 2009, 9:59 pm PT by dialing 719-457-0820 or toll-free 888-203-1112. The confirmation code 1942151 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 hand-carried ultrasound. Headquartered near Seattle, the company is represented by ten 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 relating to 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, are based on potentially inaccurate assumptions and are subject to known and unknown risks and uncertainties, including, without limitation, the risk that the acquisition of CardioDynamics will not yield the expected potential benefits, our ability to manufacture, market and sell our newest products, spending patterns in the hospital market, healthcare reform 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 Nine Months Ended September 30, September 30,

2009

2008

As Adjusted

2009

2008

As Adjusted

  Revenue $ 53,571 $ 61,633 $ 157,661 $ 173,362 Cost of revenue     16,021       18,562       48,033       50,962     Gross margin 37,550 43,071 109,628 122,400 Gross margin percentage 70.1 % 69.9 % 69.5 % 70.6 %   Operating expenses: Research and development 6,497 7,440 21,569 20,574 Sales, general and administrative 28,874 28,254 81,682 86,712 Licensing income and litigation settlement with Zonare - (2,643 ) (924 ) (2,643 ) Acquisition costs, net of bargain purchase (gain)     (110 )     -       469       -     Total operating expenses 35,261 33,051 102,796 104,643   Operating income * 2,289 10,020 6,832 17,757   Other loss, net     (3,013 )     (3,655 )       (5,486 )     (8,591 )   (Loss) income before income taxes (724 ) 6,365 1,346 9,166   Income tax (benefit) provision     (484 )     2,715       298       3,914       Net (loss) income $   (240 ) $   3,650   $   1,048   $   5,252     Net (loss) income per share: Basic $   (0.01 ) $   0.22   $   0.06   $   0.31     Diluted $   (0.01 ) $   0.21   $   0.06   $   0.30     Weighted average common and potential common shares outstanding: Basic     17,308       16,927       17,203       16,858     Diluted 17,308 17,592 17,650 17,488     Reconciliation of Non-GAAP operating income:   Operating income $ 2,289 $ 10,020 $ 6,832 $ 17,757 Adjustments to operating income for: Acquisition costs, net of bargain purchase (gain) (110 ) - 469 - CardioDynamics operations and integration costs     3,187       -       3,187       -     Non-GAAP operating income $   5,366   $   10,020   $   10,488   $   17,757       *includes acquisition and integration related charges of $4.2 million in third quarter and $4.7 million for the nine months ended of 2009 reduced by a bargain purchase gain of $1.1 million in both periods of 2009. Condensed Consolidated Balance Sheets       (in thousands) (unaudited) September 30,2009 December 31,2008

As Adjusted

    Cash and cash equivalents $ 211,035 $ 209,258 Short-term investment securities 36,864 69,882 Accounts receivable, net 55,414 66,094 Inventories 35,309 29,115 Deferred income taxes, current 14,830 13,372 Prepaid expenses and other current assets     6,695       6,623     Total current assets 360,147 394,344   Property and equipment, net 9,393 8,955 Investment securities - 578 Deferred income taxes 180 793 Intangible assets, net 28,841 16,829 Other assets     3,595       5,383     Total assets $   402,156   $   426,882       Accounts payable $ 8,451 $ 6,189 Accrued expenses 21,616 31,921 Deferred revenue     2,485       2,755     Total current liabilities 32,552 40,865   Long-term debt, net 95,462 111,336 Deferred income taxes, net 6,776 9,871 Other non-current liabilities     14,423       13,750     Total liabilities 149,213 175,822   Shareholders' equity: Common stock and additional paid-in capital 289,834 285,928 Accumulated deficit (34,988 ) (36,036 ) Accumulated other comprehensive (loss) income     (1,903 )     1,168     Total shareholders' equity     252,943       251,060     Total liabilities and shareholders' equity $   402,156   $   426,882   Condensed Consolidated Statements of Cash Flow       (in thousands) (unaudited) Nine Months Ended September 30,

2009

2008

As Adjusted

  Operating activities: Net income $ 1,048 $ 5,252 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,647 3,086 Stock-based compensation 5,201 5,209 Amortization of debt discount, debt issuance costs 3,792 6,581 Gain on bargain purchase acquisition (1,078 ) - Gain on convertible debt repurchase (1,339 ) - Non-cash gain on litigation settlement with Zonare - (643 ) Changes in working capital and other adjustments     (2,360 )     (1,487 )   Net cash provided by operating activities 8,911 17,998   Investing activities: Investment securities, net 33,939 62,368 Acquisition of CardioDynamics, net of cash acquired (8,185 ) - Purchases of property and equipment (2,290 ) (2,198 ) Earn-out consideration associated with SonoMetric acquisition     (387 )     (921 )   Net cash provided by investing activities 23,077 59,249   Financing activities: Excess tax benefit from exercise of stock based compensation - 961 Repurchase of convertible debt and related hedge transactions (20,416 ) - Repayment of convertible debt (5,250 ) - Shares retired for taxes (1,285 ) - Proceeds from exercise of stock-based awards     1,419       3,526     Net cash (used in) provided by financing activities (25,532 ) 4,487   Effect of exchange rate changes on cash and cash equivalents     (4,679 )     1,262     Net change in cash and cash equivalents 1,777 82,996 Cash and cash equivalents at beginning of period 209,258 188,701   Cash and cash equivalents at end of period $   211,035   $   271,697