SonoSite second-quarter revenue increases 18% to $61.5 million

SonoSite, Inc. (Nasdaq:SONO), the world leader and specialist in hand-carried ultrasound for the point-of-care, today reported financial results for the second quarter and first half ended June 30, 2010.

“We also were able to close the VSI acquisition by quarter end. We finished with strong momentum, and a stable back log. We will continue to focus on operating expense improvement as the year goes on, alongside driving a larger revenue base with VSI.”

REVENUE

Revenue increased 18% in the second quarter to $61.5 million and 13% for the first half of 2010 to $117.5 million, as compared to the prior year comparable periods. These comparisons included revenue of $3.8 million for the quarter and $7.0 million for the first half of 2010 from CardioDynamics (CDIC), which was acquired in the third quarter of 2009.

SECOND QUARTER HIGHLIGHTS:

• Revenue growth was led by SonoSite's US hospital channel, which was up 20%.
• Revenue from the international business was impacted by a slowdown in Europe. The Company had steady performances in several other international markets and was up 2%. The International business sector profitability grew 7-8 times the "top line" growth rate, despite the slower revenue.
• Pricing discipline and an improved product mix led to a 1.4 percentage point increase in gross margins to 72% for the quarter.
• The Company had strong performances across all four vertical clinical markets.

EBIT and EBITDAS

Second Quarter

Excluding charges of $2.5 million from the acquisition of VisualSonics (VSI), which closed on June 30, 2010, second quarter EBIT was $8.7 million, or 14% of revenue, representing an increase of 145% compared to the prior year. Including charges for the acquisition, EBIT for the second quarter was otherwise $6.1 million, or 10% of revenue.

First Half Results

For the first half of 2010, excluding acquisition charges, EBIT was $11.3 million or 9.6% of revenue, an increase of 121% compared to the prior year. Including acquisition charges, EBIT was otherwise $8.8 million, or 7.5% of revenue, up 94% over the first half of 2010.

Excluding acquisition charges, second quarter EBITDAS was $11.4 million, up 90% and $16.8 million, up 51% for the first half.

For the first half, cash flow from operations was $21.3 million compared to $7.4 million from the prior year, representing an increase of $13.9 million or 1.9 times the prior year.

EPS

Excluding acquisition charges, EPS was $0.29 per share for the second quarter and $0.36 per share for the first half of 2010.

Including acquisition charges, EPS was $0.12 per share for the second quarter, versus $0.02 per share in 2009 and $3.3 million ($0.20 per share), versus $1.3 million ($0.07 per share) in the prior year's first half.

Over the first half of 2010, the weighted average of fully-diluted outstanding shares was 16.0 million compared to 17.6 million in the prior year. Over this period, 3.3 million shares were purchased. At quarter end, fully-diluted shares were 15.1 million. Since quarter end, the Company has purchased an additional 475,000 shares and has approximately $30.0 million remaining in Board-authorized "buyback" capital.

COMMENTARY

"The quarter was an excellent step forward for SonoSite as we resumed strong revenue growth, and managed pricing and operating expenses effectively," said Kevin M. Goodwin, SonoSite President and CEO. "We also were able to close the VSI acquisition by quarter end. We finished with strong momentum, and a stable back log. We will continue to focus on operating expense improvement as the year goes on, alongside driving a larger revenue base with VSI."

Mr. Goodwin continued, "We expect to operate the VSI subsidiary in Toronto, Canada and will initiate plans to converge our technologies beginning later this year, as well as initiatives to further scale the pre-clinical business. We anticipate that VSI will contribute approximately $17 million of revenues in the second half with a positive operating contribution, excluding amortization and stock compensation. We will also initiate actions on operating synergies during the second half."

2010 FINANCIAL OUTLOOK

The company updated guidance for the expected impact of the VSI acquisition:

• Core business revenue growth of 10 - 12%. With the inclusion of $17.0 million of estimated revenue from VSI, overall revenue growth is projected at 18-19%;
• increased gross margins to a range of 70-71%, up from previous guidance of 70%;
• reaffirmed Core business EBIT margins of 11 - 13%. With $7.0 million of transaction costs, amortization and stock compensation expenses from the VSI acquisition, we project EBIT margins of 8-9% on higher revenue;
• reaffirmed Core business EBITDAS margin of 16 - 18%. Expect a positive contribution from VSI, and overall EBITDAS margins of 15-17% and,
• full-year effective tax rate of 40% compared to previous guidance of 30%. The tax rate increase is due to non-deductible transaction expenses from the VSI acquisition.