Sonosite Reports 30% Revenue Increase for Second Quarter 2004

July 29, 2004

International Revenue increases 81%TITAN Sales Exceed 60% of Worldwide RevenueJapan Distribution Agreement Signed for iLook 25 BOTHELL, WA, July 29, 2004 - Sonosite, Inc. (Nasdaq: SONO), the leader in high performance, hand-carried ultrasound, today announced significantly improved results for the second quarter ended June 30, 2004 as compared with the second quarter of 2003. Worldwide revenue in the second quarter of 2004 grew 30% to $26.1 million compared with $20.1 million in the second quarter of 2003. For the first half of 2004, the Company's total revenue grew 33% to $49.6 million compared with $37.3 million for the first half of the prior year. Year-over-year, changes in foreign currency rates increased the revenue growth rate by two percentage points for the second quarter and three percentage points for the first half. For the second quarter of 2004, Sonosite reported a net loss of $64,000, or approximately breakeven on a per share basis, compared with a net loss of $1.3 million, or $0.09 per share, in the second quarter of 2003. The second quarter of 2004 was impacted by foreign currency transaction losses due to a stronger dollar in the quarter that reduced other income. Year-to-date, Sonosite reported a net loss of $1.5 million, or $0.10 per share, compared with a net loss of $3.9 million, or $0.27 per share, for the first half of 2003. "We made substantial progress in several key areas during the quarter," said Kevin M. Goodwin, Sonosite President and CEO. "Our international business recorded a second consecutive quarter of stellar performance. We are beginning to see meaningful revenue contribution from our Japanese subsidiary as our new initiatives in this market produce results. Our European sales are benefiting from the recent launch of the 2.2 TITAN upgrade with its shared service capabilities for both cardiology and radiology imaging. Worldwide sales of our TITAN high performance systems continue to strengthen and now account for over 60% of worldwide revenue. We are focused on accelerating U.S. sales growth and have taken several steps to establish the foundation for improved long-term growth. Development of our third generation digital architecture, Gen III, continues on schedule." The Company continued to show gross margin strength with gross margin rising in the quarter to 66.5% compared with 62.8% in the second quarter of 2003. For the first half of 2004, gross margin increased to 65.7% compared with 62.8% for the prior year. Gross margin increased due to a higher mix of TITAN, the Company's high performance system, increased manufacturing efficiencies, supply chain improvements and a weaker dollar. Operating expenses grew 22% during the second quarter of 2004 to $17.4 million compared with $14.2 million in the second quarter of 2003 primarily due to increased international expenses and a weaker dollar. For the first half of 2004, operating expenses grew 22% to $34.2 million compared with $28.0 million for the first half of the prior year. Year-over-year changes in foreign currency exchange rates increased the expense growth rates by two percentage points for the second quarter and the first half. International revenue grew 81% over the second quarter of 2003 and 70% over the first half of 2003. The international second quarter revenue increase was driven by strong growth in Europe and Japan. In Japan, revenue increased to $2.0 million for the second quarter and $3.2 million for the first half, compared to $0.2 million and $0.3 million for the comparable periods in the prior year. Revenue in the U.S. grew 4% and 11% for the year's second quarter and first half, respectively, compared with the same periods in 2003. U.S. revenue accounted for 53% of total Company revenue in the second quarter of 2004 and 52% for the first half of 2004. As of June 30, 2004, cash, cash equivalents and investments were $61.7 million. For the second quarter, the Company generated cash from operations of $0.4 million compared to a use of cash of $1.6 million in the second quarter of 2003. Year-to-date, Sonosite generated cash from operations of $3.2 million compared to a use of cash of $2.4 million in the first half of the prior year. Japan Distribution Agreement with Nippon Sherwood for iLook25 Sonosite also announced today in a separately issued press release that it has formed an alliance with Nippon Sherwood Medical Industries Ltd., Japan's leading manufacturer of central venous catheters (CVCs), for distribution of the Sonosite iLook 25 system. Under the terms of the two-year agreement, Nippon Sherwood will become the exclusive distributor of the iLook 25 system for Japan's vascular access market. The alliance will leverage Nippon Sherwood's strong distribution channels to deliver the iLook 25 system to catheterization labs, surgical suites, critical care units and other point-of-care locations where catheters and lines for vascular access are placed. The agreement with Nippon Sherwood follows other steps Sonosite has taken since the beginning of 2004 to expand its presence in Japan. In June, Sonosite announced an agreement with Aloka Co. Ltd., a leading Japanese ultrasound manufacturer, for the distribution of its high performance TITAN system in Japan. In February, the Company opened Sonosite Japan KK, a wholly-owned subsidiary to provide customer service, quality assurance, sales support and direct sales. Sonosite has also signed an agreement with Olympus Corporation targeted at the Japanese endoscopy market. Company Outlook for Second Half 2004 The Company continues to expect annual revenue growth of approximately 30% and to be profitable for the year. Gross margin for the year is expected to increase to a range of 66% to 67% due to faster than expected sales of the TITAN system and manufacturing efficiencies. Operating expenses for the year are expected to grow approximately 24% over 2003 due to the Company's decision to accelerate investment in the Company's rapid international growth, cardiology market development activities and R&D programs. The increase also reflects higher expenses associated with Sarbanes-Oxley Section 404 requirements. Management expects the higher gross margin to offset the impact of the increased operating expenses and continues to expect the percentages of revenue and expenses by quarter to approximate their 2003 quarterly percentages. Commenting on the Company's outlook, Mr. Goodwin said, "The success of the TITAN system is allowing us to achieve our investment goals while positioning us for full year profitability in 2004 and beyond." 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 A replay of the audio webcast will be available beginning July 29, 2004, 4:30 pm (PDT) until August 13, 2004, 12:00 midnight (PDT) by dialing (719) 457-0820 or toll-free (888) 203-1112. The confirmation code - 589270 - is required to access the replay. The call will be also archived on Sonosite's website at SonositeSonosite, Inc. ( 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.