Sonosite Reports 29% Revenue Increase for Second Quarter 2005

July 28, 2005

MicroMaxx Successfully Launched/Shipments Begun on Schedule Sr. VP Marketing and VP Enterprise Sales Appointments Announced Conference call at 1:30 PT/4:30ET Today
BOTHELL, WA - July 28, 2005 - Sonosite, Inc. (Nasdaq: SONO), the world leader in hand-carried ultrasound, today announced results for the second quarter and first half ended June 30, 2005. Worldwide revenue in the second quarter of 2005 grew 29% to $33.5 million compared with $26.1 million in the second quarter of 2004. For the first half of 2005, the company€™s total revenue grew 36% to $67.5 million compared with $49.6 million for the first half of the prior year.

"We had a very strong finish to the quarter after an intensive and successful launch of the MicroMaxx„¢ system, our third generation hand-carried ultrasound technology," said Kevin M. Goodwin, President and CEO.

"The launch caused our revenue to be more back-end loaded than normal and we received record orders on the last day of the quarter, primarily for the MicroMaxx system, most of which we expect to ship in the third quarter. Sales of the MicroMaxx system, which we began shipping on schedule during the last two weeks of June, accounted for approximately 17% of the company€™s revenue in the quarter. In addition to a very successful product introduction, we simultaneously maintained the sales momentum of the TITAN„¢ system and made considerable progress in strengthening the company€™s position in the market. It was a very productive quarter for us," Goodwin said.

For the second quarter of 2005, Sonosite reported a net loss of $2.1 million, or $0.13 per share, compared with a net loss of $64,000, or breakeven on a per share basis, in the second quarter of 2004. Consistent with previous company guidance, the second quarter loss resulted from the planned marketing investment for the worldwide launch of the MicroMaxx system. In addition, legal expenses were higher than expected in the quarter. Second quarter results for 2005 also included a tax benefit resulting from the US tax loss and transfer pricing changes based on the operating results of the company€™s international operations. Year-to-date, Sonosite reported a net loss of $1.3 million, or $0.09 per share, compared with a net loss of $1.5 million, or $0.10 per share, for the first half of 2004.

Second quarter gross margin rose to 69.1% compared with 66.5% in the second quarter of 2004. The increase in gross margin over the prior year was due to improved product mix, increased manufacturing efficiencies and a reduced royalty rate under an agreement with Sonosite€™s former parent company. For the first half of 2005, gross margin increased to 69.6% compared with 65.7% for the prior year. Operating expenses grew 51% during the second quarter of 2005 to $26.3 million compared with $17.4 million in the second quarter of 2004.

Sales and Marketing expense in the quarter grew $6.9 million over the prior year, of which approximately half was due to introduction expenses for the MicroMaxx system. Additionally, legal expenses grew over the prior year primarily due to the successful defense of a claim by a former company distributor in the veterinary sector as well as ongoing costs of a patent litigation case. For the first half of 2005, operating expenses grew 42% to $48.5 million compared with $34.2 million for the first half of the prior year.

Operating expenses are expected to decline in the second half of 2005 compared with first half levels, both in terms of absolute dollars and as a percentage of revenue. International revenue grew 35% over the second quarter of 2004 and 45% over the first half of 2004. US revenue grew 23% over the second quarter of 2004 and 28% over the first half of the prior year. US revenue accounted for 51% of total revenue in the second quarter of 2005 and 49% for the first half of 2005. "Japan, Europe, Latin America and Canada all showed solid growth," Goodwin said. "Our US sales team demonstrated continued improvement in productivity and overall performance. We are now increasing our focus on the Asian business to complement Japan€™s growth as well as stepping up performance in our German organization.

With the addition of new leadership in marketing and US enterprise, and the industry€™s leading hand-carried product line, we anticipate accelerating progress in 2005 as well as in 2006." The company€™s effective tax rate in the first half of 2005 was approximately 18%, which differed from the expected full year rate of 35%, due to losses incurred by the international subsidiaries for the first half of 2005. The effective tax rate for the second quarter was approximately 32%, resulting in a tax benefit of $954,000. During the quarter, the company reevaluated the cost structure of its international business and made adjustments to their transfer prices. As a result, the company expects the overall corporate tax rate to now be more consistent from quarter to quarter. As of June 30, 2005, cash, cash equivalents and investments were $56.9 million.

Key Appointments Announced for Senior Marketing and US Enterprise Sales Executives

"We are very pleased to announce the appointments of Thomas J. Dugan as Senior Vice President, Marketing and Robert L. Massa as Vice President, Corporate Accounts," Goodwin said. "The appointments of these two accomplished executives will fundamentally strengthen our management team and execution going forward." Mr. Dugan has 24 years experience in marketing, sales, business development and operations in the medical device industry. He is currently a member of the Board of Directors for RITA Medical Systems, a company focused on innovative oncology therapies, and a consultant to several medical device companies.

From 2002 to 2004, Mr. Dugan was president of InterVascular, Inc., a subsidiary of Datascope Corporation and a corporate officer of Datascope. He also served as corporate vice president of business development from 2001 to 2002. Prior to joining Datascope, Mr. Dugan was vice president of marketing for United States Surgical, a division of Tyco Healthcare, and was responsible for their Auto Suture and USS/D&G Suture businesses from 1999 to 2001. From 1996 to 1999, he headed business development for United States Surgical during a period when it made numerous acquisitions, investments and divestitures.

Mr. Dugan has also held management positions in sales, marketing and international with C.R. Bard, Puritan-Bennett and Johnson & Johnson. Mr. Massa has more than 20 years of experience in the ultrasound industry. Most recently, he served as national sales manger, enterprise and strategic accounts at the ultrasound division of GE Healthcare. He was national sales manager for radiology ultrasound at GE from 2003 to 2004. From 1989 to 2003, Mr. Massa held sales management positions with increasing responsibility at ATL Ultrasound and later Philips Medical Systems after its acquisition of ATL, including leading the corporate ultrasound business as vice president and also serving as senior director, national manager of enterprise accounts.

Company Outlook for Second Half 2005
The company broadened its revenue guidance for the year to a range of 27% to 30% over that of 2004 to reflect the effects of a strengthening dollar and new product transition. Guidance for gross margin and operating expenses for the year remains the same at approximately 70% and 64% of revenue, respectively. Other income is expected to be level with the prior year. The company now expects its overall effective tax rate for the year to be approximately 35%. Due to the utilization of its US net operating loss carry forwards, the company€™s tax expense is largely a non-cash item. The company continues to expect to achieve its objective of at least doubling pre-tax income as compared with 2004.

Conference Call Information
Sonosite will hold a conference call today at 1:30 pm PT/4:30 pm ET. 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 28, 2005, 4:30 pm (PT) until August 11, 2005, midnight (PT) by dialing (719) 457-0820 or toll-free (888) 203-1112. The confirmation code - 5500043 - is required to access the replay. The call will be also archived on Sonosite€™s website at

About Sonosite
Sonosite, 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 seven subsidiaries and a global distribution network in over 75 countries. Approximately half of its revenues are generated from international markets. 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.