Worldwide Quarterly Revenue Increases 44% Over Prior YearCompany Reports $0.09 EPSConference Call Today at 1:30 pm PT/4:30 ETBOTHELL, WA - October 28, 2004 - Sonosite, Inc. (Nasdaq: SONO), the world leader in hand-carried ultrasound, today reported financial results for the quarter ended September 30, 2004. Worldwide revenue in the third quarter of 2004 grew 44% to $29.1 million compared with $20.2 million in the third quarter of 2003. For the first nine months of 2004, the Company's total revenue grew 37% to $78.7 million compared with $57.5 million for the same period of the prior year. Year-over-year, changes in foreign currency rates increased the revenue growth rate by two percentage points for the third quarter and three percentage points for the first nine months of this year. Sonosite reported net income of $1.4 million, or $0.09 per diluted share, for the third quarter of 2004, compared with a net loss of $161,000, or $0.01 per share, in the third quarter of 2003. Year-to-date, Sonosite reported a net loss of $49,000, or breakeven on a per share basis, compared with a net loss of $4.0 million, or $0.28 per share, for the first nine months of 2003. "The third quarter's solid performance was driven by growing momentum in our international business and improving performance in the US," said Kevin M. Goodwin, Sonosite President and CEO. "Our financial results reflected broadening strength across our business units and clinical markets. Worldwide market acceptance of our TITAN system continued to expand our substantial leadership position. In the third quarter, we achieved a new record for revenue and gross margin and attained profitability in a seasonally soft quarter." The Company's gross margin rose to 67.0% compared with 63.5% in the third quarter of 2003. Year-to-date gross margin increased to 66.2% compared with 63.0% for the prior year. Gross margin increased due to improved product mix, increased manufacturing efficiencies, and a weaker dollar. Operating expenses in the third quarter grew to $18.3 million compared with $13.4 million in the third quarter of 2003, an increase of 36%, primarily due to increased international and administrative expenses. For the first nine months of 2004, operating expenses grew 27% to $52.5 million compared with $41.4 million in the same period last year. Year-over-year changes in foreign currency exchange rates increased the expense growth rates by two percentage points for both the third quarter and year-to-date. The international revenue growth rate in the third quarter of 2004 accelerated to 93% over the third quarter of 2003 and 77% over the first nine months of 2003. The rapid increase was driven by strong growth in Japan and continuing excellent performance in Europe. US revenue grew 20% in the third quarter of 2004 as compared with the same period in 2003 and demonstrated solid performance across the Company's clinical markets. For the year's first nine months, US revenue grew 14% compared with a year ago. US revenue accounted for 56% of total Company revenue in the third quarter and 53% for the first nine months, compared to 67% and 64% for the comparable prior year periods. As of September 30, 2004, cash, cash equivalents and investments were $63.2 million. For the third quarter, the Company generated cash from operations of $2.1 million. Year-to-date, Sonosite generated cash from operations of $5.3 million compared to a use of cash of $5.0 million in the first nine months of the prior year. Company Outlook for the Fourth Quarter and 2005 For 2004, the Company expects to achieve annual revenue growth of approximately 33% and to be profitable. Gross margin for the year is expected to increase to approximately 67% due to improved product mix, increased manufacturing efficiencies and a reduction in the royalty rate going forward paid to the Company's former parent. Operating expenses for the year are expected to grow approximately 28% over 2003 due to the Company's decision to accelerate investment in its international business, market development activities, and R&D programs. The increase also reflects higher expenses associated with Sarbanes-Oxley Section 404 requirements and higher legal expenses associated with discovery and court-ordered mediation in the Neutrino patent infringement case which must be completed by January 31, 2005. Also for 2004, the Company expects its income tax expense in the fourth quarter to approximate the amount recorded in the third quarter. This expense is based on estimated US taxable income adjusted for the impact of tax loss carryforwards and the alternative minimum tax. For 2004, The Company expects that fully diluted shares outstanding will be approximately 15.7 million. While the 2005 budget is not yet finalized, the Company expects 2005 profitability to increase over 2004. The Company's goal continues to be to increase annual revenue by at least 25% with gross margin rising to approximately 69%. For 2005, preliminary operating expenses as a percentage of revenue are targeted between 62% and 64%. This range includes increased R&D spending, marketing and sales initiatives and potential legal costs related to the Neutrino patent litigation. It is expected that R&D and G&A expense-to-revenue ratios will be consistent with their 2004 ratios. Conference Call Information Sonosite will hold a conference call today at 1:30 pm PDT/4:30 pm EDT. The call will be broadcast live and can be accessed via the "Investors" Section of Sonosite's website at www.sonosite.com. A replay of the audio webcast will be available beginning October 28, 2004, 4:30 pm (PDT) until November 12, 2004, 12:00 midnight (PST) by dialing (719) 457-0820 or toll-free (888) 203-1112. The confirmation code - 981261 - is required to access the replay. The call will be also archived on Sonosite's website at http://ir.sonosite.com. About SonositeSonosite, Inc. (www.sonosite.com) is the innovator and world leader in hand-carried ultrasound, with an installed base of more than 20,000 systems. The Company, headquartered near Seattle, Washington is represented by eight subsidiaries and a global distribution netwok in over 75 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. The Company employs approximately 450 people worldwide.