SonoSite Reports Record Operating Income And Strong Cash Flow

October 23, 2008

Company Ends Negotiations with Acquisition Candidate Will Take Related $3.0 million Pre-tax Charge in Q4 Conference Call to be Held October 30 at 1:30 pm Pacific/4:30 Eastern

BOTHELL, WA - October 23, 2008 - 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, 2008. Worldwide revenue in the third quarter of 2008 grew 23% to $61.6 million compared with $50.0 million in the third quarter of 2007. For the nine months of 2008, worldwide revenue grew 24% to $173.4 million compared with $140.2 million for the nine months of 2007. Changes in foreign currency rates increased worldwide revenue by approximately 0.6% for the third quarter and 2.7% for the nine months of 2008. For the third quarter of 2008, net income grew to $4.7 million or $0.27 per diluted share, compared with net income of $1.5 million or $0.09 per diluted share in the third quarter of 2007. For the nine months of 2008, net income grew to $8.5 million or $0.49 per diluted share, compared with net income of $2.6 million or $0.15 per diluted share for the nine months of 2007. Net income in both the third quarter and nine month periods of 2008 included a $1.5 million after-tax benefit for the settlement of the Zonare patent lawsuit.

"We saw excellent revenue growth alongside strengthening profitability in the third quarter," said Kevin M. Goodwin, SonoSite President and CEO. "Both our US and International teams executed well. Our International team turned in its eighth consecutive quarter of 20% plus revenue growth while the US grew 18%. Demand for our new products, the M-Turbo„¢ and S Series„¢, continued to accelerate and accounted for approximately 60% of the quarter's revenue."

"On the M&A front, this month we ended negotiations with an acquisition candidate," Mr. Goodwin said. "These discussions had been ongoing for awhile but we could not reach an agreement. We will therefore take a $3.0 million one-time, pre-tax charge in the fourth quarter for associated expenses as well as for severance." "SonoSite will redouble its focus on achieving long-term organic growth and improving profitability," Mr. Goodwin continued. "We have a strong market share position, leading proprietary technology and markets that are large and marginally penetrated. Even with the expected economic slowdown, we plan to continue our growth plans and investment toward innovations that improve clinical productivity and patient safety worldwide."

Third Quarter and YTD Financial Highlights
US revenue grew 18% in the third quarter and 16% for the nine months of 2008 as compared with the prior year periods. International revenue grew 30% for the third quarter and 31% year- to-date as compared to the same periods in 2007. Overall, US revenue accounted for 54% of total revenue in the third quarter and 48% for the nine months. Changes in foreign currency rates increased international revenue by 1.3% for the quarter and 5.6% for the nine months of 2008. Gross margin in the third quarter of 2008 was 70% compared with 69% in the third quarter of 2007, and 71% for the nine months of 2008 compared to 70% in the same period of 2007. Total operating expenses declined 6% in the third quarter to $33.1 million and increased 6% to $104.6 million for the nine months as compared with the same periods in 2007. Third quarter and year-to-date 2008 total operating expenses included a $2.6 million pre-tax benefit for the previously mentioned patent litigation settlement. Excluding this benefit, total operating expenses increased 2% in the third quarter and 9% for the nine months.

R&D expense increased 7% for the quarter and 5% for the nine months while SG&A expense increased by 1% for the quarter and grew 10% for the nine months compared to the prior year. As a percent of revenue, SG&A expense declined to 46% from 56% in the prior year quarter and to 50% from 56% for the nine months of 2007. Operating income in the third quarter of 2008 was $10.0 million compared with a loss of $340,000 in the prior year. Third quarter operating income represented a record for the company, even after the patent litigation benefit is excluded. For the nine months, operating income was $17.8 million as compared with an operating loss of $1.1 million in the year ago period. Other expense in the third quarter of 2008 was $1.7 million compared with other income of $2.5 million in the third quarter of 2007. For the nine months of 2008, other expense was $2.8 million compared with other income of $5.0 million in 2007. The change for the third quarter was due to foreign exchange rate changes and to lower interest rates on investments. For the nine months of 2008, the change was primarily due to the increased interest expense from the convertible senior notes the company issued in July 2007. As of September 30, 2008, cash and investments totaled $330.5 million, an increase of $20.6 million from December 31, 2007. Cash flow from operations during the nine months of 2008 was $18.0 million compared with $13.5 million in 2007.

Company Updates 2008 Outlook
SonoSite updated its financial outlook for 2008. Revenue is expected to grow approximately 19 - 20% for the year as compared to previous guidance of 20%. The expanded range reflects the potential negative impact on revenue growth from changes in foreign currency rates and a cautious capital spending outlook for US hospitals. Management expects gross margin of approximately 70% and operating margins of 9 -10% which compares to the previously provided range of 9 - 11%. The company reported a 2% operating margin in 2007. Other expense is expected to be approximately $3.8 million compared to previous guidance of $3.0 million reflecting the negative impact from changes in foreign currency rates. The tax rate for the year is expected to be about 41% compared to previous guidance of 40%. The company will provide its 2009 outlook early next year.

Executive Promotions Announced
SonoSite also announced the promotions of Mr. Graham D. Cox to Senior Vice President, Worldwide Sales and Distribution and Mr. James M. Gilmore to Senior Vice President, Product Innovation and Delivery. Mr. Cox joined SonoSite in 1999 as General Manger for Europe, Middle East and Africa and was promoted to Vice President for the region in 2003. Mr. Cox was appointed Vice President, International in 2005. Prior to SonoSite he held management positions with ATL Ultrasound, Philips Medical Systems and Acuson Corporation. Mr. Gilmore was one of the first engineers to join SonoSite at the time of the company's spin-off in 1998 and served as director of transducer engineering for six years. Mr. Gilmore rejoined SonoSite in 2006 as Vice President Research and Development after serving as global engineering manager for ultrasound probes at GE Healthcare from 2004 to 2006. Mr. Gilmore also held engineering positions previously with ATL Ultrasound and Diasonics. "Both Graham and Jim have made significant and substantial contributions to SonoSite's growth and success," Mr. Goodwin said. "They are richly deserving of these promotions and I look forward to their continued accomplishments and leadership in their expanded roles at the company."

Conference Call Information
SonoSite will hold a conference call October 30 at 1:30 pm PT/4:30 ET. 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 web cast will be available beginning October 30, 2008, 4:30 pm PT and will be available until November 13, 2008, midnight PT by dialing (719) 457-0820 or toll-free (888) 203-1112. The confirmation code 4566842 is required to access the replay. The call will also be archived on SonoSite's website at http://ir.sonosite.com.

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. The company employs over 600 people worldwide.

Forward-looking Information and the Private Litigation Reform Act of 1995 Certain statements in this press release relating to the market acceptance of our products, possible future sales relating to expected orders, and 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 and are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions. Factors that could affect the rate and extent of market acceptance of our products, the receipt of expected orders, and our financial performance include our ability to successfully manufacture, market and sell our ultrasound systems, our ability to accurately forecast customer demand for our products, our customers' ability to finance the purchase of our systems, including the effect of reducing spending by hospitals, our ability to manufacture and ship our systems in a timely manner to meet customer demand, variability in quarterly results caused by the timing of large project orders from governmental or international entities and the seasonality of hospital purchasing patterns, timely receipts of regulatory approvals to market and sell our products, regulatory and reimbursement changes in various national health care markets, constraints in government and public health spending, the ability of our distribution partners and other sales channels to market and sell our products and any changes to such channels, the impact of patent litigation, our ability to execute our acquisition strategy, the effect of transactions and activities associated with our issuance of senior convertible debt in July 2007, including a repurchase of a portion of the debt, on the market price of our common stock, and as well as other factors contained in the 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. Download selected financial information (PDF)

Share