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 fourth quarter and year ended December 31, 2009.

REVENUE

Revenues in the fourth quarter of 2009 were $69.7 million, a decrease of 1% compared to the fourth quarter of 2008. Full year of 2009 revenues were $227.4 million, down 7% versus full year of 2008.

Revenues for the partial year acquisition of CardioDynamics were $4.2 million for the fourth quarter and $7.1 million for the full year of 2009.

Excluding partial year revenues from CDIC, SonoSite fourth quarter revenues were $65.5 million, down 7% versus the fourth quarter of 2008. Full year revenues excluding CDIC were $220.3 million, a decrease of 10% compared to 2008.

Changes in foreign currency rates increased worldwide revenues by 4% in the fourth quarter and decreased revenues by 2% for the full year.

OPERATING INCOME AND CASH FLOW

Fourth Quarter Results

Fourth quarter operating income was $6.8 million, an increase of 46% compared to the fourth quarter of 2008. Operating income for the fourth quarter 2009 included charges from CDIC of $3.3 million, related to operating results as well as acquisition and integration.

Excluding CDIC, operating income in the fourth quarter of 2009 was $10.1 million, an increase of 117% compared to the fourth quarter of 2008. Operating margins reached 15.4% for the quarter.

Full Year Results

For the full year of 2009, operating income was $13.7 million, including charges from CDIC of $6.9 million; a decrease of 39% compared to the full year of 2008.

Excluding CDIC, full year of 2009 operating income was $20.6 million, down 8% versus the full year of 2008 on a $24 million or 10% revenue decline versus full year 2008.

Cash Flow

Operating cash flow was $15.3 million for the quarter and $24.4 million for the full year of 2009, as compared to $11.2 million and $29.2 million for the comparable periods of 2008. Operating cash flow for the full year of 2009 reflects the $21 million received to settle a patent dispute in the fourth quarter.

Net income

For the fourth quarter of 2009, the Company recorded net income of $2.2 million or $0.12 per share, compared to $6.0 million or $0.34 per share in 2008. For the full year of 2009, net income was $3.2 million or $0.18 per share compared to $11.2 million or $0.64 per share for the full year of 2008. Excluding non-recurring items such as bond gains, acquisition expenses, and patent royalty revenue, net income would have been $0.36 per share for the full year of 2009 or essentially even with 2008.

COMMENTARY

“In a very tough year we simply got stronger as a company, improving our operating model and tightening our capital allocation process,” said Kevin M. Goodwin, SonoSite President and CEO. “We successfully integrated CardioDynamics which included significant changes to their sales force during the fourth quarter, while successfully closing out our litigation matters and achieving 9% operating margins, a level similar to 2008, despite core revenues falling by $24 million or 10%.”

“With a difficult year behind us we are stronger and more focused on growth initiatives for 2010 and beyond. We have leaned out our ‘SG&A structure’ and are deploying our strategy across four key vertical markets,” said Mr. Goodwin.

“We have also initiated market development in cardiovascular disease management markets enabling us to expand our role in the cardiovascular health marketplace.”

“Additionally, we are at work on revising our capital structure with the recently announced “Dutch Auction” tender offer to repurchase $100 million of our shares. Following a two year evaluation of investment alternatives, it became clear to us that investing in our own stock was our best choice,” Mr. Goodwin further commented.

As of December 31, 2009, the company held $257.7 million in cash and investments and had outstanding senior convertible notes of $114.7 million for net liquidity of $143.0 million.

2010 FINANCIAL OUTLOOK

The company provided the following guidance:

• Revenue growth of up to 10%
• Level gross margin
• Operating margin of 11 – 13%

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, convertible debt repurchase, and partial year patent royalty revenues using non-GAAP measures.

Conference Call Information

SonoSite will hold a conference call on February 11 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 February 11, 2010, 5:30 pm PT and will be available until February 25, 2010, 9:59 pm PT by dialing 719-457-0820 or toll-free 888-203-1112. The confirmation code 7406921 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, prolonged adverse conditions in the U.S. or world economies or SonoSite’s industry 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 Twelve Months Ended December 31, December 31,

2009

2008

As Adjusted

2009

2008

As Adjusted

  Revenue $   69,728 $ 70,162 $ 227,389 $ 243,524 Cost of revenue     21,433       22,753       69,466       73,715     Gross margin 48,295 47,409 157,923 169,809 Gross margin percentage 69.3 % 67.6 % 69.5 % 69.7 %   Operating expenses: Research and development 7,468 8,124 29,037 28,698 Sales, general and administrative     33,979       34,610       115,206       118,679     Total operating expenses 41,447 42,734 144,243 147,377   Operating income* 6,848 4,675 13,680 22,432   Other (loss) income, net**     (2,695 )     5,500       (8,181 )     (3,091 )   Income before income taxes 4,153 10,175 5,499 19,341   Income tax provision     1,967       4,206       2,265       8,120     Net income $   2,186   $   5,969   $   3,234   $   11,221     Net income per share: Basic $   0.13   $   0.35   $   0.19   $   0.66     Diluted $   0.12   $   0.34   $   0.18   $   0.64    

Weighted average common and potential common shares outstanding:

Basic     17,346       17,028       17,239       16,892     Diluted     17,832       17,511       17,698       17,486       Reconciliation of Non-GAAP net income:   Income before income taxes $ 4,153 $ 10,175 $ 5,499 $ 19,341 Adjustments to income before income taxes for: Patent royalty revenue (652 ) - (652 ) - Acquisition of CardioDynamics: Acquisition costs, net of bargain purchase (gain) (79 ) - 389 - Integration costs 1,591 - 4,301 - Amortization of intangible assets 892 - 1,252 - Operating loss, net 885 - 1,001 - Loss (gain) on repurchase of convertible debt, net     239       (8,246 )     (1,100 )     (8,246 )   Non-GAAP income before income taxes 7,029 1,929 10,690 11,095   Non-GAAP income tax provision     3,329       797       4,403       4,658     Non-GAAP net income $   3,700   $   1,132   $   6,287   $   6,437     Non-GAAP net income per share: Basic $   0.21   $   0.07   $   0.36   $   0.38     Diluted $   0.21   $   0.06   $   0.36   $   0.37    

Weighted average common and potential common shares outstanding:

Basic     17,346       17,028       17,239       16,892     Diluted     17,832

 

    17,511       17,698       17,486       *includes acquisition and integration related charges of $3.3 million in the fourth quarter and $8.0 million for the year ended 2009 reduced by a bargain purchase gain of $1.1 million in the year to date.  

**includes (gain) loss on repurchase of convertible debt, net of deferred financing costs.

Condensed Consolidated Balance Sheets       (in thousands) (unaudited) December 31,2009 December 31,2008

As Adjusted

    Cash and cash equivalents $ 183,065 $ 209,258 Short-term investment securities 74,682 69,882 Accounts receivable, net 71,347 66,094 Inventories 29,554 29,115 Deferred income taxes, current 7,861 13,372 Prepaid expenses and other current assets     11,019       6,623     Total current assets 377,528 394,344   Property and equipment, net 9,160 8,955 Investment securities - 578 Deferred income taxes, net 775 793 Intangible assets, net 27,920 16,829 Other assets     4,425       5,383     Total assets $   419,808   $   426,882       Accounts payable $ 6,175 $ 6,189 Accrued expenses 25,605 31,921 Deferred revenue, current portion     5,504       2,755     Total current liabilities 37,284 40,865   Long-term debt, net 92,905 111,336 Deferred income taxes, net 2,722 9,871 Deferred revenue 18,081 1,367 Other non-current liabilities     13,670       12,383     Total liabilities 164,662 175,822   Shareholders' equity: Common stock and additional paid-in capital 291,514 285,928 Accumulated deficit (32,802 ) (36,036 ) Accumulated other comprehensive income     (3,566 )     1,168     Total shareholders' equity     255,146       251,060     Total liabilities and shareholders' equity $   419,808   $   429,882   Condensed Consolidated Statements of Cash Flow       (in thousands) (unaudited) Twelve Months Ended December 31,

2009

2008

As Adjusted

  Operating activities: Net income $ 3,234 $ 11,221 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,352 4,125 Stock-based compensation 6,632 8,709 Amortization of debt discount and debt issuance costs 5,015 8,305 Deferred income tax provision 303 3,552 Gain on convertible debt repurchase (1,100 ) (8,246 ) Gain on purchase of CardioDynamics (1,099 ) - Other adjustments 586 (170 ) Changes in working capital     5,434       1,675     Net cash provided by operating activities 24,357 29,171   Investing activities: Investment securities, net (3,824 ) 50,390 Purchases of property and equipment (2,586 ) (2,841 ) Acquisition of CardioDynamics (8,185 ) - Earn-out consideration associated with SonoMetric acquisition     (387 )     (921 )   Net cash (used in) provided by investing activities (14,982 ) 46,628   Financing activities: Excess tax benefit from exercise of stock based compensation 144 1,025 Shares retired for taxes (1,342 ) - Retirement of convertible debt and related hedge transactions (30,360 ) (61,923 ) Proceeds from exercise of stock options & employee stock purchase plan     1,769       4,551     Net cash used in financing activities (29,789 ) (56,347 )   Effect of exchange rate changes on cash and cash equivalents     (5,779 )     1,105     Net change in cash and cash equivalents (26,193 ) 20,557 Cash and cash equivalents at beginning of period     209,258       188,701     Cash and cash equivalents at end of period $   183,065   $   209,258