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 fourth quarter and year ended December 31, 2010.

REVENUE

Revenue for the fourth quarter was $89.3 million, an increase of 28% for the quarter. Full-year 2010 revenue reached $275.4 million compared to $227.4 million in 2009, an increase of 21%.

VisualSonics, Inc. revenue was $8.9 million for the quarter, representing the second consecutive strong performance since the company was acquired in June 2010.

SonoSite revenue, excluding VisualSonics, was $80.4 million, an increase of 15% compared to the fourth quarter of 2009, and $257.7 million for the full-year, an increase of 13%.

Foreign currency rates had negligible impacts on fourth quarter and full-year results.

HIGHLIGHTS

• US Sector achieved an all time high in quarterly revenue of $40.5 million, up 37%
• Revenues in the musculoskeletal (MSK) market doubled for the year
• US Enterprise channel tripled revenues during the fourth quarter
• Sales trend for impedance cardiography (ICG) products improved
• International revenues stabilized and met internal expectations
• VisualSonics acquisition delivered second consecutive quarter with on target results
• 2010 EBITDAS grew at approximately triple the rate of full-year revenue growth
• The company was awarded a significant “point-of-care standardization agreement” from a world renowned, major US health system. The agreement includes a large multi-unit order that adds to their already large installed base of nearly 200 existing ultrasound systems within the health system.

EBITDAS and EBIT

Fourth Quarter Results

Fourth quarter EBITDAS reflects non-recurring charges of $2.3 million, including charges related to acquisition and restructuring.

Excluding these charges, EBITDAS was $19.6 million or 22% of revenue, an increase of 74% over the prior year. Including these charges, EBITDAS was $17.7 million, or 20% of revenue, up 82% over the fourth quarter 2009.

Excluding these charges, EBIT was $15.3 million or 17% of revenue, an increase of 88% over the prior year. Including these charges, EBIT was $13.0 million, or 15% of revenue, up 97% over the fourth quarter 2009.

Full-Year Results

For the full year of 2010, non-recurring charges were $7 million.

Excluding these charges, EBITDAS was $48.1 million or 17% of revenue, an increase of 60% compared to the prior year. Including these charges, EBITDAS was $41.7 million, or 15% of revenue, up 64% over the full year 2009.

Excluding non-recurring charges, EBIT for the full-year of 2010 was $33.9 million or 12% of revenue, up 87%. Including these charges, EBIT was $26.9 million, or 10% of revenue, up 100% over the full-year 2009.

For the full-year, cash flow from operations was $22.5 million.

EPS

Excluding non-recurring charges, EPS was $0.52 per share for the fourth quarter and $0.98 per share for the full-year of 2010.

Including non-recurring charges, EPS was $0.41 per share for the fourth quarter, versus $0.13 per share in 2009. Including non-recurring charges, EPS was $0.66 per share for the full-year 2010, versus $0.19 per share in 2009.

Over the full-year of 2010, the weighted average of fully-diluted outstanding shares was 15.0 million compared to 17.7 million in the prior year. Over this period, the company repurchased 4.2 million shares in the open market pursuant to its share repurchase program. At year end, shares outstanding were 13.5 million.

COMMENTARY

“We are encouraged by the results of our fourth quarter and full-year 2010,” said Kevin M. Goodwin, SonoSite’s President and CEO. “With a record revenue performance and improving structural profitability, we are pleased with the progress of our overall business platform heading into 2011. We are now preparing for major product roll-outs over the next eighteen months and continued pursuit of improvement over the next three-year cycle. With the new product launches, we anticipate stronger performance and increasing competitive strength, as we are confident that these products will raise the ‘innovation bar’ in point-of-care ultrasound visualization.”

Mr. Goodwin continued, “In addition, over the next several weeks, our newly acquired division, VisualSonics, will be launching a significant ‘new to the world’ technology called the Vevo® LAZR Photoacoustics Imaging system. This technology provides researchers with the capability to measure hypoxia (oxygen levels) in tumors, which will be particularly valuable for cancer research.”

“The Vevo LAZR will operate in concert with our unique ultra high-frequency micro-ultrasound technology and opens up the potential to further advance cancer research, and as such, there has been significant anticipation of the Vevo LAZR launch. We are excited to announce that a world-leading biotech company has already pre-ordered a Vevo LAZR system. This technology will make its debut at the American Association of Cancer Research April 3-6th,” said Mr. Goodwin.

2011 FINANCIAL OUTLOOK

For 2011, management is targeting full-year revenue growth of 13% to 18%.

• Management expects organic revenue growth rates to increase in the second half as new technology introductions from VisualSonics arrive “in market” and core business “point-of-care” market initiatives take hold.
• In the international markets, we expect stable yet lower growth in Western Europe, based on current economic conditions. The company is targeting higher growth rates in Asia-Pacific and the BRIC geographies.
• The company will continue to focus on operating leverage while investing in new product introductions and demand generation. Based on the current development cycle, the company expects higher proportion of expenses in the 2nd and 3rd quarters compared to previous years.
• Additionally, management expects to incur additional non-recurring charges of approximately $1-2 million related to the integration of VisualSonics and continued cost restructuring. These actions are intended to provide a more scalable and more structurally profitable business platform over the coming three year period of 2011- 2013.

Non-GAAP Measures

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

Conference Call Information

SonoSite will hold a conference call on February 17 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 17th at 5:30 pm PT and will be available until March 3rd at 9:59 pm PT by dialing 719-457-0820 or toll-free 888-203-1112. The confirmation code 2745372 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 Twelve Months Ended December 31, December 31, 2010 2009 2010 2009   Revenue $ 89,298 $ 69,727 $ 275,362 $ 227,389 Cost of revenue   26,590     21,682     79,740     69,715   Gross margin 62,708 48,045 195,622 157,674 Gross margin percentage 70.2 % 68.9 % 71.0 % 69.3 %   Operating expenses: Research and development 9,287 7,453 32,550 29,021 Sales, general and administrative 40,411 33,981 136,156 116,132 Licensing income and litigation settlement   -     -     -     (924 ) Total operating expenses 49,698 41,434 168,706 144,229   Operating income 13,010 6,611 26,916 13,445   Other loss, net   (4,020 )   (2,694 )   (12,519 )   (8,181 )   Income before income taxes 8,990 3,917 14,397 5,264   Income tax provision   3,217     1,684     4,425     1,981  

 

 

Net income $ 5,773   $ 2,233   $ 9,972   $ 3,283     Net income per share: Basic $ 0.43   $ 0.13   $ 0.69   $ 0.19   Diluted $ 0.41   $ 0.13   $ 0.66   $ 0.19     Weighted average common and potential common shares outstanding: Basic   13,498     17,346     14,506     17,239   Diluted   14,031     17,832     15,028     17,698    

Reconciliation of Non-GAAP Measures:

  Reconciliation of Adjusted EBIT: Operating income (EBIT) $ 13,010 $ 6,611 $ 26,916 $ 13,445   Adjustments to EBIT: Acquisition and integration costs 1,144 1,512 4,212 4,690 Restructuring and other non-recurring charges, including stock-based compensation component   1,122     -     2,753     -   Non-GAAP Adjusted EBIT $ 15,276   $ 8,123   $ 33,881  

 

$ 18,135     Reconciliation of Adjusted EBITDAS: Operating income (EBIT) $ 13,010 $ 6,611 $ 26,916 $ 13,445   Depreciation and amortization 2,588 1,800 8,406 5,447 Stock-based compensation   2,131     1,351     6,377     6,552   EBITDAS 17,729 9,762 41,699 25,444   Adjustments to EBITDAS: Acquisition and integration costs 1,144 1,512 4,212 4,690 Restructuring and other non-recurring charges, excluding stock-based compensation component   695     -     2,225     -     Non-GAAP Adjusted EBITDAS $ 19,568   $ 11,274   $ 48,136   $ 30,134     Reconciliation of Adjusted EPS: Non-GAAP Adjusted EBIT $ 15,276 $ 8,123 $ 33,881

 

$ 18,135   Other loss, net   (4,020 )   (2,694 )   (12,519 )   (8,181 ) Adjusted income before income taxes 11,256 5,429 21,362 9,954 Adjusted income tax provision   4,028     2,333     6,566     3,745   Adjusted net income $ 7,228   $ 3,096   $ 14,796   $ 6,209     Non-GAAP Adjusted net income per share, diluted $ 0.52   $ 0.17   $ 0.98   $ 0.35  

SonoSite, Inc.

Selected Financial Information

    Condensed Consolidated Balance Sheets (in thousands) (unaudited) December 31, December 31, 2010 2009   Cash and cash equivalents $ 78,690 $ 183,065 Short-term investment securities - 74,682 Accounts receivable, net 81,516 71,347 Inventories 37,126 32,216 Deferred tax asset, current 7,801 7,350 Prepaid expenses and other current assets   12,384     12,034   Total current assets 217,517 380,694   Property and equipment, net 9,133 9,160 Investment in Carticept 8,000 - Deferred tax asset, net 4,373 775 Intangible assets, net 85,209 27,920 Other assets   4,823     4,425   Total assets $ 329,055   $ 422,974     Accounts payable $ 10,597 $ 6,175 Accrued expenses 32,535 25,923 Deferred revenue   6,042     5,504   Total current liabilities 49,174 37,602   Long-term debt, net 97,379 92,905 Deferred tax liability, net 1,811 5,083 Deferred revenue 15,236 18,081 Other non-current liabilities   12,565       14,873   Total liabilities 176,165 168,544   Shareholders' equity: Common stock and additional paid-in capital 299,005 287,537 Accumulated deficit (148,975 ) (32,753 ) Accumulated other comprehensive loss   2,860     (354 ) Total shareholders' equity   152,890     254,430   Total liabilities and shareholders' equity $ 329,055   $ 422,974  

SonoSite, Inc.

Selected Financial Information

    Condensed Consolidated Statements of Cash Flow (in thousands) (unaudited) Twelve Months Ended December 31, 2010 2009 Operating activities: Net income $ 9,972 $ 3,283 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,176 5,352 Stock-based compensation 6,377 6,552 Deferred income tax (provision) benefit

(5,073

) 427 Amortization of debt discount and debt issuance costs 4,505 5,015 Gain on bargain purchase of CardioDynamics - (1,099 ) Gain on convertible debt repurchase - (1,100 ) Excess tax benefit from exercise of stock-based awards (1,188 ) (144 ) Other adjustments 1,469 729 Changes in working capital  

(1,761

)   2,033   Net cash provided by operating activities

22,477

21,048   Investing activities: Maturities of investment securities, net 74,777 (3,824 ) Purchases of property and equipment (1,590 ) (2,586 ) Investment in Carticept Medical Inc. (8,000 ) - Purchase of VisualSonics, Inc, net of cash acquired (61,440 ) -

Purchase of CardioDynamics, net of cash acquired

- (8,185 ) Earn-out consideration for SonoMetric acquisition   -     (387 ) Net cash provided by (used in) investing activities 3,747 (14,982 )   Financing activities: Excess tax benefit from exercise stock-based awards 1,188 144 Proceeds from exercise of stock-based awards 5,267 1,769 Minimum tax withholding on stock-based awards (1,212 ) (1,342 ) Stock repurchase including transaction costs (126,104 ) - Repayment of VisualSonics, Inc. long-term debt (8,865 ) - Payment of LumenVu contingent consideration (425 ) - Proceeds from sale of call options - 1,646 Purchase of convertible debt - (30,492 ) Purchase of warrants   -     (1,514 ) Net cash used in financing activities (130,151 ) (29,789 )   Effect of exchange rate changes on cash and cash equivalents  

(448

)   (2,470 )   Net change in cash and cash equivalents (104,375 ) (26,193 ) Cash and cash equivalents at beginning of period   183,065     209,258   Cash and cash equivalents at end of period $ 78,690   $ 183,065